ESOP Guy

It is governed by the terms of the plan. Ask the plan administrator if it is allowed. It might be allowed but the plan would not be required to offer a hardship payment of funds rolled over to a 401(k) plan from an ESOP or any other type of plan.

If the murder case is still not fully resolved the family MIGHT try and get the prosecutor on their side. If that happens and as part of any plea deal (if there is one) it can cover the assets as long as it respects the anti-alienation rules. That is to say the distribution would have to be to the participant and then they are obviously free to do what they want with the cash. I had many years ago a bank that had an ESOP. One of their tellers embezzled a large sum of money. The only assets she had that was close to enough was her 401(k) and ESOP balances combined. As part of the plea agreement, the teller pleads guilty and for a reduced sentence she agreed to take a distribution from both the 401(k) plan and ESOP and deposit the funds into a savings account of her former employer. The money was then turned over to the bank. I can imagine a prosecutor being less willing to go for a reduced sentence on a murder but the family does make a sympathetic group.

I am pretty sure you will get a letter asking why your beg bal doesn't match if you do your idea. I agree with BG5150. If the prior year's work comes up in an audit the prior TPA can defend their work in my opinion. But most likely the audit lottery is on your client's side and no questions will be asked.

And to be real clear about this, it doesn't matter if it is a DB or DC plan, the answer would be the same. The reason the answers are what they are is because all the QDRO rules tell you is if you have a valid QDRO. There are no QDRO rules that tell you what a QDRO has to say that isn't related to it being a valid QDRO or not. As such the plan benefits are just property that can be negotiated over in a property settlement during a divorce. So if one party is willing to give up a part of their pension benefits as part of the property settlement, so be it from the plan's perspective (as long as there is a valid QDRO).

You can use full year comp has always been my understanding.

Once again I know of no one that advocates ROBS that sets up the process the way you describe. If they issue 1 share for the original $50,000 investment then for the next $200,000 investment they would issue 4 share to the qualified plan. So at the end the corporation would have $250,000 in assets and that would be seen as the value of the corporation. There would be 5 shares outstanding so the value of each share is worth $50,000. There has been no dilution of the original investor.

Actually whether the company has any assets at the time of the purchase IS KEY to the question I was answering. Allow me to quote part of it again. If a corporation invites an arm’s-length investor to purchase 100% of the corporation’s original-issue shares before the corporation has any customer, any business activity, any franchise right, any intellectual property, any other property, any money, or any other asset (beyond the corporation’s right to be a corporation), how much should the investor pay for the shares? If your answer is anything more than $0.00, why? Emphasis is mine The question clearly states the value of the corporation is zero before the qualified plan has any assets would have a value of zero. As I point out I have never seen one of these transactions done when the company has not assets at all. They always set up a corporation and have it receive a nominal amount of cash. So it has assets so the value has to be something greater then zero. So the answer to the question given is the question has a fatal flaw in assuming the corporation has no assets. I don't see how anyone disputes the idea if a corporation has $1,000 in cash and not other assets or liabilities can be worth less then $1,000? You might make a case there are some transaction costs in shutting it down but as long as it is a going concern that doesn't seem to apply. So read my example again I don't say the stock has a value AFTER the transaction. I clearly say the stock has the SAME value BEFORE and AFTER the transaction with the plan. No one has given a valid reason addressing the facts I gave why that isn't true. The one attempt to do so make a false statement the corporation had no assets before the transaction when I clear said it had assets before the transaction with the qualified plan.

I think that is why the defenders of this say you first sell one share for some nominal amount be it $1, or $1,000 before the qualified plan does any transaction then your question is n/a It has some assets and nothing else.

Strictly speaking I know people who make the case you don't have to have this stock independently appraised every year. There is no legal requirement for that to be done which is true. You would have to answer the question on the Form 5500 saying there was no appraisal. I worked with a company that wasn't a ROBS but a PSP that owned almost 100% of the company stock. They did not get an appraisal. When we got a letter from the IRS about it we explained how the company came up with the value on their own. The IRS never came back after that. I think that was VERY risky. They had both NHCEs and HCEs and they made distributions based on their value. I think if they had been challenged over the value and lost they could have owed a lot of people a lot of money.

As I understand it the logic goes this way regarding the FMV. I start AB corp and put $1 of capital into the company and issue 1 share. What is its FMV at that point? They say the answer is $1 for total enterprise value and $1 per share. I roll $100k into AB corp's PSP. The PSP buys 100k of newly issued shares from AB corp for $1 each. So now AB corp has $100,001 and 100,001 shares issued. The FMV per share is still $1 with total enterprise value of $100,001. Now AB corp uses that money to start a franchise (it is this industry that seems to push this idea more then anyone else) and maybe the value drops but that is AFTER the transaction with the PSP. Not saying an appraiser would sign off on the above but that is my understanding of the logic. From what I can tell the IRS doesn't seriously dispute the above logic. Their problem comes after this point more then this part of the transaction.

I believe it was last Saturday in Sept. It mentioned this was a 52/53 week year plan year in the definition of a plan year. The problem was their payroll system didn't really cut off well except at month end. Of course their investment statements all cut off as of the last day of the month.

I used to work on a profit sharing plan that was a 52/53 week year end for a grocery store chain. The year end was always a Saturday in Sept. They did this because that is how they thought of their business. Their weekly specials started on Sunday and ended the following Sat. This could mean that the actual year end was between something like Sept 25 or 26 to 30 just depending on how things fell. I got census and trust accounting every year for 9/30. All the participant statements were ending 9/30. The only thing that followed the actual year end was the auditor felt like they should audit the actual plan. So there was a reconciling note in the auditor's report reconciling the 5500 assets to the auditor's report. That plan never had any problem that I know of doing what I described. Truth be told I had to check with the actuary who worked on their DB plan make sure I even knew the correct year end just in case it came up every year.

So are you saying the HCE doesn't have his statements from 2016? (Or 2015 it isn't clear which year you are actually talking about) But if you had those you can compute the earnings it seems like.

I have always understood it was for facts like this that there was the April 1 following rule. People who terminated late in a year it might take a while to determine they are due an RMD. Obviously, there is no practical way to hand him an RMD check as he walks out the door. I think he is due 4/1/2017. That is how I have always recommended it to my clients. He terminated in 2016.

While I agree the client needs to keep the records there are TPAs out there that are just plain jerks. Back in the '90s I worked in a town that wasn't huge. So all the various people who did record keeping/TPA work in town knew each other pretty well. There was one bank that sold the trust services and record keeping combined. The guy in charge got it in his head that it helped keep clients from switching by making it a policy to be a big pain in the rear in terms of conversions. He had decided if he made it painful enough the rest of us wouldn't bother to solicit his clients. (He was wrong by the way.) Their policy was to drag their feet. To provide all data on paper. (We once landed a 1,000+ life plan and they sent us all the account balance data on paper). The client hadn't paid all the invoices it turned out and withheld payment until we got electronic versions of the data. So yes the client is wrong. Maybe the former TPA should get paid. I have worked for plenty of TPAs that charge a deconversion fee that was reasonable. Since we were paid we always gave were very cooperative in regards to the process. But there are unreasonable TPAs also. And there isn't much you can do about it.

I am assuming the amendment was not written to answer these questions which it should have been done. If the amendment doesn't answer this question then all plans give the Plan Administrator the power to make reasonable interpretations of the plan that don't discriminate. The PA needs to use that power to answer these questions. To me I don't see how you don't grandfather the existing loans. It might even be a protected benefit since it exists. The next two I can make a case for either one and the PA would seem reasonable. What I mostly see is you can't refinance in either case. You might have 2 loans but any change needs to result in 1 loan after the change. Likewise in 3 any change needs to result in zero loans.

Before you hire an attorney you might just want to talk to the ex-spouse and see if the plan has a benefit for your mom as an Alternate Payee. It is possible she is due the money but the plan provisions don't allow them to be paid until some triggering event. The ex-spouse might be able to say she got paid and show that it happened and your mother forgot about the payment. A simple conversation won't hurt and could save you costs. If the conversation doesn't result in what you think needs to happen then you can hire the attorney.

Yup, no de minimus. Years ago I had a client who had a person whose RMD was under $1 every year. They simply had a no force out policy so the check was sent every year. Many years it went uncashed but some years it was.

By the way link to IRM https://www.irs.gov/irm/part25/irm_25-006-001r.html#d0e1004

Aren't there questions on the Form 5500 that would let the IRS know there is a violation for the 4975 violation? That isn't true for over contributions. That logic seems consistent with the pizza case logic used by the court.

I don't think the Form 5500 statue of limitations (SOL) is the guiding SOL. You owe an excise tax on the over contributions for all those years and that is done by filing a Form 5330. Since it doesn't sound like you ever filed any of those has any SOL started? It would seem like the relevant SOL would start with that form not the 5500. I think you owe for all the years back to 2007. Willing to be told I am wrong as I can't think of any cite to say I am correct but I don't see the 5500 SOL is being applicable. What is true since that excise tax is cumulative whatever years you do pay will be effected by those older prior year. I will add if you can show that this was an innocent error and once discovered was fixed quickly the penalties for late filing and late payment are often times waived by the IRS if you ask. I have had much success getting late Form 5330 penalties waived over the years. This leave the client only paying the tax and interest. The IRS never waives interest.

K2retire it has been since the '80s since I took my B law classes but my memory says merely writing "for deposit only" isn't an endorsement. Not saying there aren't banks that don't take checks like that. But the most common way you see it is a business which stamps for deposit only and the business name but note it does have the business name. A check is payable to a specific person and payable only to that person. An endorsement is that person giving someone else the right to collect on that check. You can put restrictions on that endorsement but the person has to sign over those rights. In this case I stand by the idea a dead person can't sign over the right to have that check paid to someone else simply because the person is dead.

I guess we just disagree about the facts. If the person is dead they can't receive the funds period because there is no person. Depositing the funds doesn't solve the question about how will the check be cashed. Depositing money is a form of cashing the check. It is cashing the check and then depositing the cash into an account. It requires someone to endorse the check and the person who needs to do that is dead. So who is endorsing the check? I don't see what the form says matters. The person who completed the form is dead. To me that means the form no longer is valid. What matters is the plan document. Any plan document I have seen says this is a distributions from the plan. All plan documents say upon death a distribution is made to the beneficiary not the participant. So I stand by my answer the check ought to be made payable to the beneficiary. To make a distribution to someone who isn't alive is violating the terms of the plan that is an operational error. In my mind you simply are defining the problem incorrectly by insisting the problem is the estate does or doesn't need an EIN. I repeat myself again it is true if an estate is being paid a distribution it has to have an EIN.

While as a practical matter KSOPs tend to be run like two plans they are legally one plan. So for example when deciding if a person has been fully paid in order to forfeit a person on the ESOP side you have to make sure they were paid on the 4k side and the ESOP side. So in my mind this plan has regular contributions if the 4k side is getting the contributions you describe. I can't point to a cite but I think doesn't exist because it is one plan so any contribution to the plan count.

Who is the actual beneficiary per a beneficiary form or plan document? Isn't that who the check is made payable to? If the beneficiary is an estate then the estate needs to get an EIN which is a pain. But the estate will have to pay the taxes. (I believe this make a rollover to an IRA not an option for the person(s) who are beneficiary (ies) of the estate.) That is just a good reason to make sure people are completing beneficiary forms. I think it helps if the plan document also says who is the beneficiary if there is no form more then spouse and then estate. I like documents that say: spouse, children (pro rata), then maybe parents/siblings and if none of those exist then an estate. .