ESOP Guy

To me this is up to the company the salesman works for to determine. Is the guy terminated or not is the question. If he is out there still making sales calls on behalf of the company and they still have him on their payroll system as an employee then why isn't he an employee? Getting paychecks seems like one of the worse determining factors for this question. To me if his boss says he is still employed and they can show he still does some work even if he doesn't get a commission check then he isn't terminated. If the boss says he is no longer employed as he no longer tries to sell for us then he is terminated and they should be able to get you a termination date. This simply isn't a plan issue it is a sponsor issue. Does the sponsor say he is employed? If so he is. If not then he isn't.

Are you supposed to write about a topic to explain what it means or more like GMK's suggestion of policy change? If it is the first thing that you would write about the fiduciary standard and rules for qualified plans. If the 2nd then GMK's suggestion is good. In particular in my mind is how holding them to those rules and maybe even funding rules could have helped prevented the public pension funding problems or how it could help avoid it in the future.

Yes plan termination is one of the few times you can force everyone out. The plan amendment terminating the plan hopefully allows for it. Some people might make the case the amendment doesn't have to say so. The law is clear you can do it. But in the end you can force the money to an IRA set up in this person's name. They can't hold the plan hostage.

What you describe was normal back when balance forward was the norm. Back then most people figured it would all equal out in the end. Some year there were gains and some years a loss so the effect pretty much was a wash over time for everyone. The hard part was years like 2008 and the plan allowed in-service distributions. I had a balance forward plan that was annual and allowed for in-service distributions. People started figuring out that they could get their 12/31/2007 balance out in Oct of 2008. There was a run on the bank. They were just forced to amend the plan to stop such things by making it quarterly valuation and you couldn't get paid an in-service until after the next quarterly work was done. It is why people moved to daily once technology made it practical and affordable as others are saying.

Which POTUS candidate will embarrass us the most the next 4 years. I used to joke in the past about wanting a "none of the above" choice on a ballot. This year I am serious I want one of the ballot. (I know one shouldn't get too political on this board as it is one of the few safe places so sorry if I offended anyone up front.)

One can rant and rail against companies that make the client determine the HCEs but my experience has been those clients mostly bring it upon themselves. I have always worked for TPA firms that were full service and tended to pride themselves on being technically very sound. We were almost never the cheapest player in the field. Starting some time in the '90s those kinds of TPAs really started to shrink and leave the field or went out of business it seemed. The reason was simple many of the plain plans that just wanted a simple 401(k) plan wanted it to be cheap also. Along came companies that offered very cheap services. Some did it by only offering a very small set of prototype plans with very limited plan provisions. They got the costs down by being able to train fairly low paid people how to use a simple flow chart. If the client has a plan type A then this is how distributions work. No one worked on a client. Instead you had distribution clerks and contribution clerks.... all of them worked for a fraction of what a person like me would be paid. Another group did this by pretty much subsidizing the TPA work with the assets management fees they were getting on the investments. Anther group did it by making the client do the "hard" work. The client was forced to fill out long questionnaires that basically meant they were determining who was an HCE, who could be excluded from coverage and so forth. There were in fact some that pretty much did all of the above. And they were cheaper then us often times by a good amount. So we lost client after client to these low cost providers. On a regular basis the year after they left we could get panicked calls from the former client saying their ADP test either failed/passed when it had never done that before. They wanted to know had we done it wrong in the past or the new person doing it wrong now. We could justify our work. We even won some testing business back but not very often. I got laid off twice during this time period to TPA firms losing their business to these types of competitors. So in many ways I don't have tons of sympathy for those clients. They got the service they paid for by going cheap. This is part of the reason I now only work on ESOPs. So far no one has figured out how to do the above to this part of the business. The margin are higher then 401(k) TPA work. I so happen to find ESOPs more interesting then 401(k) plans also. I also found I could get a job with as little as sending one resume out when laid off if I knew ESOPs as it is a much rarer skill then 401(k)s. So that is my rambling story but to repeat my main point. My guess is ADP doesn't charge the client much for the service and the client thought they were being smart by saving so much money. Now they are learning they got what they paid for-- sorry if this comes across as a little bitter. I don't think I am but I am tired of seeing people thinking someone could do the work I was doing for 30% less and the quality wouldn't go down.

When I say someone ought to have the records to me that someone is the plan sponsor. In all the years as a TPA we always gave the client (the plan sponsor) either a paper (until some time in the mid to late 2000s) or pdf copy of all the data that showed everyone's account balance and the change from period to period. I know they don't always do a good job of keeping them but your ex-spouses employer ought to have the data needed to compute this accurately. I would ask their HR department or the person in charge of the plan to search their records.

I will admit now a days someone prepares all my 5500s and SARs and I just check them (and give very little thought to this costs). But back when I was doing it the answers would have been: too much to hope for. You had to hard code the cost in or use some default setting.

Here is a link to the rule https://www.law.cornell.edu/cfr/text/26/1.401(a)-14 Note is says: 60th day after the close of the plan year in which the latest of the following events occurs -

An ESOP can be set up to make you wait the 5 years. It doesn't HAVE to be that way but it CAN be that way. If the plan you were in is set up that way then most likely you have to wait. There some exceptions if you are age 65 or at Normal Retirement Age and been in the plan for 10 year which you seem to be aware of based on your question. You might be reading the 401(a)(14) rule wrong. It is the LATER of: 1) Age 65 2) Normal retirement Age (NRA) 3) 10th Anniversary of Participation 4) Termination So if you have the 10th Anniversary part and terminated but are only age 50 you would have to wait until age 65 or NRA which in most ESOPs is 65 for this rule. Obviously at age 50 the 5 years would happen first. If you were age 62 at termination and was past the 10th Anniversary of Participation then you would only have to wait until the plan year after you were age 65 which is 3 years. If you think you should be paid and you are being told you can't start by asking questions of the people at your former employer who deal with the ESOP. Get a copy of the SPD. They should be able to explain when and how you should be paid. Hope that helps.

Am I missing something here? Are you just wanting to do this so you can know if the amount you get seems reasonable or is someone demanding you do this? I have been in the TPA business since the early '90s and no firm I have worked for would ever make such a demand of a Alt Payee. Nor has any client of ours thought it was the Alt Payees job to figure out what they were owed. I have seen it where we charge for this calculation and it is passed on to the two people involved in the divorce but not once has someone demanded the Alt Payee prove what they are owed. That is the job of the plan administrator. Like I said the Plan Administrator can pass through costs if the plan is set up that way but it is their problem to come up with the correct benefit payments-- period end of statement. It is also their job to keep the needed records to compute the earnings and benefits over time. I know that doesn't always happen in transitions (even for clients I worked on it can be hard to get great records from the prior firm) but someone hopefully kept some kind of records that were produced annually about your spouses' annual account balance. Once again if you are just doing this because you want to know if it is reasonable fine. But if people are putting the work on you that doesn't seem right based on facts on hand.

Not sure about this but could anyone raise the question if the husband was really "hired" by the wife's company? It looks like there might have been some kind of pro forma hiring for the sole purpose of allowing him to roll the funds into the 401(k). It has been a long time since I studied the topic but the IRS has the power to challenge otherwise legal transactions on the basis of the Economic Substance Doctrine. (Not sure if this will be worth their time but it looks like a classic example of why this doctrine exists) https://www.irs.gov/businesses/codification-of-economic-substance-doctrine-and-related-penalties http://www.journalofaccountancy.com/news/2014/oct/201411106.html Once again the IRS in the end says ROBS are legal but clearly doesn't like them and appears willing to hit them with technicalities. This comes across as a ROBS on steroids. https://www.irs.gov/retirement-plans/employee-plans-compliance-unit-epcu-completed-projects-project-with-summary-reports-rollovers-as-business-start-ups-robs https://www.irs.gov/pub/irs-tege/robs_guidelines.pdf It sounds like there is a fixed buy/sell agreement where the 401(k) has to sell the asset upon it growing to a fixed sized. Would there be any fiduciary concerns? The plan can lose 100% of its investment but can't gain more then 100%. Most investments are lose 100% in theory unlimited upside. Besides PT issues which I am not an expert on that topic come to mind quickly. This sound risky at best and trouble at worse. Honestly a simple ROBS seems like it would have been easier and less trouble-- but not liked by the IRS as noted above. That is unless there is an expectation of employees and they simply don't want to share equity in the new business.

My guess you have thought of this but it is worth asking. Does the plan allow them to be used to pay fees and are there any fees? That would solve a lot of problems which is why my guess is you thought of it. Other then that I don't see what choice you have but to allocate based on the last set of compensation that was in existence. Can I cite anything? No, but you have to use some rational method and the only other method would be based ratio of balances like earnings and with forf it seems like comp is better.

Remember also if it is decided the plan document doesn't address this situation all plan documents allow the plan administrator to make reasonable nondiscriminatory interpretations of the plan provisions. In this case it sounds like you should make some recommendations to the plan administrator as to what they should and could do. (I agree with others the best decision is immediate entry) After precedent is set I would make sure that decision is documented and followed in the future. There might even be some benefit to making a note so that the next time the two plans are amended or restated the decision actually be added to the plans so it is clear.

I find Turbo Tax can explain and justify what their software does rather well. That isn't to say I haven't seen it have an error in its programming. After all they do put out patches so they are correcting something. But by this time in the year you simply aren't the first self employed person to try and have it figure out this deduction. So if I were a betting man I would bet on Turbo Tax being correct and either you have coded something about yourself wrong or you misunderstand. The above explanations are the most likely reasons but give them a call.

FYI, I think you have to disclose such a switch for such a reason. In fact what you wrote above is the most common reason I write for this disclosure. The next most common is the CPA firm was bought or merged with a larger one. In that case it is a little more grey in that the partner who did/ or was in charge the audit before and after is the same. It is just that person was getting close to retirement so they sold their smaller practice to a large firm as part of their plan to retire At which time I typically write some version of what I said above. The firm was merged/bought and the same lead partner before and after is performing the audit. .

the odd part is even if the 80/120 rule did apply (which to be clear I agree it doesn't) the rule isn't mandatory. If you have under 100 participants in the past you can wait until you reach 120 before you are required to get an audit There is nothing stopping you from getting the audit as 101 participants. (I guess there is nothing stopping you from getting an audit at 50). Most people just don't want to spend the money for an audit if it isn't required but you aren't required to file as a small plan even under the rule.

Peter you are over thinking it. This is a simple notice that is easy to produce. I have never (and I mean NEVER) seen an issue from one of these notices. I will admit I have never had the prior auditor submit a comment regarding issues either. Unless there is an issue that might be commented on if the name on the Sch H changes do the notice and move on. If there is an issue I would think a better course of action is manage the problem with the prior auditor then hide it.

No, I have not heard anything like that. It would be interesting to know when they report people normally. Is it the form for the year they terminate or the form of the year following termination.

I would add while the OP is looks like mere mistake or preference is cause of the change I have seen others that as a practical matter are bigger problems. I had a situation recently where we had a check cut and it turned out that something had changed at the rollover institution between the time of the request and the check cut. ESOP distributions can be a little slower then 401(k) payments. It turned out the check wouldn't be cashed by the rollover institution. Obviously since the check wasn't made out to the person they couldn't cash it. (Although it is amazing how many times I have seen a rollover check get deposited into a personal account) So what are we supposed to do just leave this person with a check that has no value? You could reply as long as the new payee was another rollover institution there is no tax effect but it isn't clear the objections raised here are merely taxable issues. I guess what I am saying is this conversation is one of those "its great in theory to say this is the law but I can find plenty of times where the law just didn't seem to account for what can happen" conversations. To be clear like I said at the beginning I am NOT claiming ever case is a hard case but there can be plenty of them also. As I said in my prior comment nor do we merely limit what we do to the hard cases so if one wants to accuse me of rationalizing so be it.

jpod I am not sure what my answer would be. I also think that it would be nearly impossible to detect it happening. We typically get a new form or some other written instruction from the person. I have also found that IRS agents don't tend even look for this. They see there is a 1099-R. The sum of them equals the distributions that came from the trust as they rarely go so far into the weeds to see the in/outs. We can produce forms if asked which is rare. So do I have some complex legal answer? No, but I do see what was described above all the time as a practical matter.

What you describe there I see all the time. We even do it at my current job. Basically void the check and its a do over.

I would strongly recommend the amendment to be done and clear. This makes it clear a type of loan is allowed and why others aren't. It also makes it clear that just these and not other rollover loans are allowed. In short I see a well thought out amendment stopping future debates and charges of "but you allowed this rollover you have to accept these now". Or why does Joe have a 401(k) loan and I can't have one?

I agree with the others on this isn't a plan problem. The loan rules only talk about the loan being paid back. It doesn't require any kind of source of the payment. My guess is the rule writers didn't even think of the idea someone might pay the loan for the participant. One issue that hasn't been addressed and it might be minor but most loan notes do specify that the loan will be taken from the person's pay check. That is a valid contract that hasn't been followed. I can't decide if that would change anyone's answer regarding implications outside the plan but my guess the terms of the note were not followed here so a contract was violated. .