ESOP Guy

This one might win the weirdest of 2016 award!.

I don't see a valid plan. He isn't a sole proprietor if nothing else. Put the burden on the broker to show why there is a valid plan in light of the evidence to the contrary.

I guess I am having a hard time on how they don't know the ending balances. How did someone produce the participant statements for those years? The ending balances in a 401(k) plan ought to be the sum of those statements. Once again did they produce W-2s? They had to know the 401(k) amounts then. Have the payroll records been lost? Did they take a deduction for any match on a tax return? As noted above the world is imperfect so I can see how after years the data might no be as easy to get as one would like but it seems like the data has to exist.

Full disclosure here I am a DC not a DB guy. However, my basic take on this before any of the DB experts commented was like My 2 cents (I waited to reply to see if there was any unique DB issues the DB experts would bring up) -- The sponsor/administrator signs the Form 5500 they get the final say on how it reads. So unless you can show what they want is some kind of reckless disregard for the law that could harm your practice I don't see a good reason for the sponsor's wishes to not be the final result. I can see why you might want to document why you think your answer is the better answer with the client but the TPA isn't the plan sponsor or plan administrator.

I am NOT an expert but I seem to recall using the employer's EIN is a problem. I seem to recall that the IRS reconciles the deposits to all the forms sent in. So if you deposit on the sponsor's EIN and file the 945 on trust's EIN you will get a letter asking where the deposit is. The sponsor will get a letter asking why the deposits exceeds the various reports say ought to be deposited.

Are cite and site sight words?

Can't speak to the safe harbor portion of the question as I just haven't worked on them in almost 5 years. A couple of points however: 1) When you say it fails by how much does it fail? The failure is not defined well. The HCE and NHCE ratios have to be different by no more then a "de minimis" amount. I have seen lawyers be fine with as much as a 7 percentage point spread. (I am not comfortable with that large of a spread but I have seen it.) So there might be some value in finding out how comfortable everyone is with what de minimis is in this case. 2) I have also understood the correction is to allocate based on a definition of compensation that does pass nondiscrimination.

NUA issue is the only wild card here. If this person can take a stock distribution and NUA applies then they could be taxed at cap gain rates. If you roll over to a plan or IRA you lose that. There can be times where taking the tax hit now makes sense. Otherwise there is nothing about ESOP money that makes it harder to rollover then other types of money from qualified plans.

The answer is "depends". As Mike says I would go talk to an expert to get help. It really depends on the facts. Something as small as forfeitures in the future in the plan might cause problems with keeping the plan as is. On the other hand one can easily imagine a set of facts that allows you to keep the PSP and putting more money into it. It just depends on so many factors. To decide what can be done is going to take way more facts then you are giving here and most likely can be given efficiently via a forum like this. This is a good time to spend a little money for expert help in my opinion.

If there is an outside trustee (and in particular if it was a bank or trust company) I am 99.99% sure they have a legal opinion from an attorney on the voting issue. Their downside to not have such an opinion is too great compared to the costs saved by not getting such an opinion. Likewise if the outside trustee is a bank or trust company I would be more relaxed as to if this change is designed to help or harm the participants/company.. The trustee has a legal duty to only the trust and the participants. Once again the downside to not doing that well are rather large. Having said all of that I still would encourage you to ask questions. All of these questions seem like fair questions that people ought to have the answer to them.

I would tend to say a pass through vote should have happened but on these issues I tend to error on the side of caution. As a side note this is one of those odd situations I just never understand. This transaction had to have had lawyers involved. I am just stunned none of them sought out the advice of an ERISA attorney to see if there were any issues they aren't thinking of because they don't know anything about ESOPs and that is an important factor here. Or if there is was an ERISA attorney then it should be a matter of documenting why they though the trustee could do the voting and no pass through voting rights triggered. I would recommend talking to the trustee. If it is an outside trustee I am sure they had this conversation and can document why no pass through vote happened. If it is an inside trustee then it is more likely no such conversation happened. And that would just go to show yet another reason why outside trustees might be worth the cost.

It has always been my understanding that both hardship and loan availability is a benefit, right or feature that has to be offered on a nondiscriminatory basis. So it has to be in both or you would have to test to prove it passes nondiscrimination. The latter isn't practical in my mind so you pretty much are left with the former.

Your question is a bit hard to understand so I am making some assumptions in my answer. It sounds like the CPA is trying to do a Limited Scope Audit. In order to do that a qualified trustee or custodian has to certify the investment information. My understanding is only banks and insurance companies can be "qualified" for these purposes. Some reading: https://www.aicpa.org/interestareas/employeebenefitplanauditquality/resources/accountingandauditingresourcecenters/pages/limitedscopeauditsresourcecenter.aspx

Let me make sure everyone understands the facts. In the previous years was this extra payment made by you sending a personal check to the 401(k) company or was in an extra loan payment from a bonus check at work? What I can tell you is if you were sending in a personal check that is pretty rare to be allowed so I am not shocked someone is saying they can't do it now. I have my doubts that making an extra payment outside of payroll is a protected benefit.

This is a classic example of: what does the document say??? I have never worked with a document that didn't answer this question clearly and if the lawyer who wrote the document was even remotely competent you will comply with the law if you follow the document. Read the document or the base document if a prototype. In fact the guy who taught me this business would throw you out of his office if you came in it with this kind of question without the document in your hand. You better have been able to demonstrate you had looked for the answer. Only then would he take the document and walk you through finding the answer in it.

I am going to admit I don't know the answer to this but here is something to think about before this gets done. Back in 2008 I still worked on a few 401(k) plans. A client I had that was a dental practice. The dentist wanted to have his own brokerage account in his 401(k) plan. So he set everyone in the practice with a brokerage account inside the 401(k) plan. In what turned out to be a brilliant move in hindsight one of the dental hygienist put 100% of her money (many years worth of money-- for her it was a lot of money) into Ford stock towards the bottom of that stock's price She tripled her money in the long run. But I couldn't help but think what if she had put 100% into GM right before it went into bankruptcy. I can imagine a lawsuit coming from the later decision. To me the question is if the people start picking so radical investments are there any fiduciary concerns? As pointed out be others the rule isn't if they decide there is no liability on the part of the fiduciaries. I am not sure you should do this without some limits and I am not sure what those limits ought to be. But I keep thinking this could be a lawyer's dream fact set.

Are they trying to apply incorrectly some of the Sch C fee disclosure rules? I quote from the Sch C instructions: You must enter the information required for each person who rendered services to or had transactions with the plan and who received $5,000 or more in total direct or indirect compensation in connection with services rendered to the plan or the person’s position with the plan during the plan year. I would call it a bad reading but I could see how someone might read this such they needed that information. To me the "person" paid is the TPA firm but they could be reading the word person more literal.

Haven't we had this conversation before? http://benefitslink.com/boards/index.php/topic/49354-withholding-on-hardship-distributions/

Why are you withholding 20%? A hardship can't be rolled over to an IRA so I thought they are subject to 10% withholding per IRC §3405(b)(1). Been a while since I worked on 401(k)s so willing to be told I am wrong but I am thinking 20% is not required here. So I think this person could elect 15%.

Years ago I was put them on 2015 and move on 100% of the time. Now I am still that way but it is more complex. The IRS will send a penalty letter if they detect a late filing. (I had a client get one) So if you file the 2014 late prepare you client to get a penalty letter from the IRS. The instructions to the form tell you what the amount is per day per person. Also, the most recent IRS audits my clients have had the IRS is asking about terms and the 8955-SSA. So if 2013 gets audited they will ask when and how the people who needed to be reported were reported. Things could get detected how they went in an audit. I don't have any relevant experience to this situation yet. So if you file them on 2015 and either 2013 or 2015 get audited the issue might come up and problems might happen. I think the strict letter of the law answer is file the late 2014. You might be able to get the penalty waived (never tried it) or you might not. Like I said I sill favor the 2015 but might have a talk with client to make sure they are comfortable with it. (Might have talk with my boss also)

We can do it for all of our client with an online questionnaire (this doesn't include the name, ssn...) that is 5 web pages. Most of the data rolls forward from the prior year and we ask them to update it if changes (it is a rare day the company name changes, they might change attorney now and then but not often for example) . I have not counted total questions but I would be shocked if it is over 50 in total. Critical test data is not rolled forward. For an ESOP we make them give us the synthetic equity every year and will actually do a follow up e-mail as 409(p) is that important to get right. I have never worked for any place that would send 30 pages and would imagine my clients would balk at the idea.

As a practical matter the very few times I had to deal with this I seem to recall it was more trouble then it was worth. Constantly making sure deposits were made on time to deduct and 415 limits and so forth worked out. It has been a long time but I think the reason you don't see this much is it isn't very practical.

Just to be clear the loan is current correct? It is not in default correct?

Back in the '80s my wife and I knew a couple whose baby did a number of ads for P&G. The baby got paid really well for pictures of it being put into print ads. The parents said at the time it was the baby's college fund. I kept thinking 60+ years of compound interest in an IRA wow! Might not make sense for a company but might make sense for the 2 year old.

If the sale was indeed $18M then even with a "discount" $3.1M is grossly undervalued. What we don't know is the actual purchase price of the 51% stake, the $18M appears to be a "best guess" of the participant. I admit the discount would seem very large. My point was primarily that it isn't obvious that the 49% owners would get the same as the 51% owners in every case. A 51% owner already has control of the company and doesn't need to buy more shares to control the company. So there could be a discount. I stand my my basic idea start by asking questions about how the process was done. If there was an outside trustee (which any more every lawyer recommends just for these questions) then the participants in the ESOP were in fact represented by someone who had a fiduciary obligation to them. That makes it less likely the price was a problem. If it turns out the trustee for the sale was a corporate officer then there is a stronger case to follow up on the price.