ESOP Guy

My understanding the intent of the rule was to solve the problem of the money never making it to the trust. You have to remember the rule was made back when many 401(k) (especially small 401(k)s) were balance forward. So what you had was people being reported balance of X in the plan when the assets weren't in the plan. What made up a large part of X was a receivable from the sponsor. I had a client back then where it wasn't uncommon for the receivable to be 8 or 9 quarters of deferrals that hadn't been put into the plan. The amount of cash in the plan was much lower then what the sum of the statements said everyone's balance was. What happened a few times is the sponsor (not my client but others) went bankrupt and the the receivables were never paid. That is when people found out the money coming from their pay checks wasn't in the 401(k). In fact my brother had this happen to him. He lost over $30k when his employer went bankrupt. It turned out towards the end the company was staying afloat with the employees' money. So the DOL made the rules you had to get the money into the plan ASAP.

Unless the sponsor can use the psychic hotline to know this person was going to terminate after the in-service distribution I am not sure what that procedure would look like.

Who is the e-mail from? It isn't clear from the question. If IRS I call scam alert. I am not aware of the IRS ever using e-mail to notify people about filing problems. Willing to be told I am wrong in this case but that is my first reaction. If it is from Reliance then as other are saying ask them.

The real issue in my mind is fair = consistent. Sure the market could be up a bunch this year but a few years back it was down a bunch at this point. If you are consistent about it then in the long run it seems reasonable to figure it will all balance out in the long run. That was the basic thinking back in the '90s when I did work on a good number of annual balance forward plans. The thing you need to avoid is allowing people to game the system. Back in 2008 I worked on an annual valued PS plan. Most distributions happened shortly after the annual work was done. However, without thinking they had allowed for in-service distributions years prior for anyone over 59.5 at request. These payments were based on the prior 12/31 So in 2008 a bunch of the 59.5 people figured out in Oct of '08 they could get their money out based on their 12/31/2007 balance. There was a "run on the bank" if you will of these people getting their money out without having to take the '08 losses. This was millions of dollars and the loses were in effect being picked up by the people stuck in the plan. The problem was they were inconsistent. There was only one group that could in effect wait all year to see how the market was doing and then decide to take their money. The provision was quickly changed. So to me the way to do this is make the rules and give as little discretion to anyone as possible Then be as consistent as possible with those rules. In the long run it ought to be fair as it should wash out in the end. Also no one can be accused of gaming the discretion in their or someone's favor. Maybe I just stated the obvious and what was basically said the same as above but that is my 2 cents worth.

The lease sounds like a clear Prohibited Transaction unless these is a DOL exception I am forgetting about. The purchase and co-ownership sounds like a PT also to me. PTs are not my area of expertise I will admit so another person might chime in and add value. However, it it clear to me that in both cases those are the rules you want to research. As an aside just do a search on the words "real estate" on this board and you will get threads describing all the reasons why real estate in a qualified plan is a bad idea. I have seen too many times where RE in a plan ends badly.

Have I seen smaller gaps between the mailing of the distribution form and the first payments? Yes The gap being discussed doesn't seem outside reasonable. By law they have to give people 30 days to reply to the forms. So if they want to do them in a single batch that means they can't send checks before 6/15. It does take a few weeks to get all the checks ready and make sure no one is over or under paid. After all if someone is over paid they aren't very likely to return the payment when told about the over payment. So it is important to get the amounts right. So if you add a week or two to the 6/15 date you are getting to around 7/1. They should give you a copy of the SPD but I doubt it will tell you that they are required to make the payment faster. It most likely uses "as soon as administratively feasible" language. So they will claim the time frame outline is what is administratively feasible. If the question is it normal to wait until the IRS issues the Determination Letter that is very common practice. Does it sound like they could have done a better job communicating-- yea it does. But bad communication and you have an actionable complaint isn't often times the same thing. Hope that helps.

I have always wondered if this could be seen as a fiduciary issue. Is the choice of plan document a sponsor decision alone as it could have been done before the plan even existed? The closest example I can think of is back in the '90s you heard of banks requiring companies to move their 401(k) assets to the bank's trust department as a condition for a loan. The objection was the transfer wasn't done for the exclusive benefit of the participants. In this case the choice of where to put the assets could be seen as being done in part to save the sponsor money on a document and not to benefit the participants. I am more spit balling then making a strong case as fiduciary issues aren't my strongest subject but I have come to believe that of all the issues in retirement plans this is often times one of the most ignored.

Or slightly more accurately you have to add the 2015 excess to any amount contributed for 2016 to see if over the 2016 limit. If still over the limit you pay the excise tax again. So if they put in exactly 25% for 2016 you would pay another year's excise tax on the over contribution amount.

I can't help but wonder if the reason the IRS wants the EIN on the Form 5500 is to solve the inactive EIN problem. I don't recall ever having that problem back when the Sch P existed. You were using the EIN at least once a year back then. If it comes back to the 5500 you will be using it once a year and maybe it won't go inactive I don't see a good reason for most plans to have one either but the IRS doesn't need good reasons.

Are you sure the match formula is mandatory and isn't discretionary? It isn't uncommon for them to tell employees how they plan on running the discretionary match if they make it but it is still discretionary.. Re-read the SPD and other notices very carefully to see if they hedge if the match will be given with some kind of language that points to the employer having discretion. It doesn't ever hurt to ask but if you didn't get a match based on the facts given it doesn't sound like it would be a last day of employment issue.

It looks like for the 2016 (It was first going to be on the 2015) Form 5500 the question is going to ask you for the trust's EIN. It isn't clear what the sanction would be if you put none. You were always supposed to have one but as you say after making you get one the IRS would make them inactive if you never filed any kind of form using the EIN.

There are proposed new questions for the Form 5500 that are going to ask for the trust's EIN.

I guess that reality hadn't come to mind. Is the plan so far gone it can't saved at all without a bailout.

Not an expert in this field at all. The DC side is my side of things. But I have worked for plenty of firms that have a DB practice so I like to think I understand the basic concepts. As I read the rejection does it seem like they almost are implying they should come back with deeper cuts? A big part of the rejection does seem to say the interest rate assumption is too high (other assumptions are flawed also) and they think the fund will go insolvent even after these cuts. That would seem to say make larger cuts and come back. Sure they added the notices weren't written plainly but that can be solved also. Nothing in the rejection seems to say this can't be done. I say this because at least some of the popular media is saying this is a victory for the retirees. As I read it this might be a Pyrrhic victory for the retirees.

it sounds like I am preaching to the choir here but if you really want to get a good idea of all the things that can go wrong do a search on this board on "real estate" and other such assets in plans. A little searching and you will get hits on people asking things like what do you do now that RMDs are do and the plan only has illiquid assets like real estate. How do we pay the property taxes on the real estate and the plan has no cash and the sponsor doesn't want to put a contribution in the plan. I need to pay one of the non-owners and their balance is larger then the cash in the plan and we can't sell the illiquid assets. It goes on and on over the years. Oh if that doesn't do it point out to them the IRS has proposed to start asking questions about if you owe Unrelated Business Income Tax on plan activity. Yeah they do these investments wrong and they can owe tax on the income.

Actually I think Lou might have the better plan.

Let us know how the "invasion" goes!

When the IRS sends the letter after you file it doesn't hurt to ask for a waiver. I only file 5500 for retirement plans but my experience is if you can show the cause was unintentional and it won't happen again I get a waiver for my client. In fact I can't remember the last time a client actually paid a fine on a late 5500. We don't have that many and most are caused by odd situations that I can explain. With 5500s it seems like they are more interested in getting the form then money from the form.

Is he really only giving you 2 days to take a distribution? That isn't clear from the facts given so far.

Another thing you might want to look at is any possible windfall that wasn't intended. Do you have someone not 100% vested but termed 2 years ago? You might want the amendment to be clear these people don't vest as of the sale date as long as this isn't seen as a person who would need to be vested per the Partial Termination rules. In short I would spend some time looking at the people who aren't vested and think out possible fact patterns to craft a good amendment that answers all the possible questions up front. I can't tell you how many times I have seen hastily drafted amendments in these situations that cause unintended consequences down the road.

I think what is described above can be done. I do think there needs to be a plan amendment. I don't think the Partial Plan Termination rules alone get the desired results.

Remember the trustees need to follow the Prudent Man rule under ERISA. They must ask in a prudent manner and expert (I think there is a presumption of being an expert) would in these situations. I also believe that even if they hire people fiduciary responsibilities can't be outsourced. They should at least regularly monitor the consultant's job to make sure they are in compliance with the contract's terms. But because of the Prudent Man rule I think this will always be a facts and circumstances standard and there won't be a hard and fast rule on how often to meet.

Proposed questions on the 5500 are asking about UBTI. The plans were never exempt.

At its most basic level if it is a private company it is their data so they can share it as much as they like. You go the various ESOP conferences (like there was last week in MN) and you will find plenty of people that claim (with studies published in peer reviewed journals) open book management when combined with an ESOP improve profitability. Not sure if anyone has ever done research into non-employee owned companies and open book management. Their data their choice in the end.

ESOP Guy, for those participants who get neither the credit nor the value of starting retirement savings, is there an argument that increasing participation will, over time, increase the plan's asset size, which could get the plan more purchasing power, enabling it to buy superior investments or less-expensive services? That strikes me as a too hypothetical of a benefit.