ESOP Guy

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.

If trust assets have to be used for the benefit of the plan participants how are the participants benefiting in this situation? I don't see this benefit to anyone but the person being paid. (Maybe the one joining can be said to benefit.) But everyone else seems to not benefit at best and is harmed at worse since that $48 could have been used to offset general expenses. I see this as a fiduciary failure but I can't cite anything but the logic given above.

My guess is someone at the brokerage house also doesn't understand who really owns the account. While it might look like the participant owns the account the reality is the trust does. As such the trustee can do what is being requested. It might help to try and get them to see that fact.

I know this doesn't help you right now but this strikes me as a good future amendment to clear things up going forward. I can't cite anything but my first reaction is the same as Belgarath.

The odd part of that is if you gave the person who made $200 a $50 contribution (25% of $200 in case it isn't obvious) you would have plan that meets the discrimination rules and no one would ever say otherwise. Everyone got 25% of compensation after all. . Yet this person is $150 worse off then the allocation that supposedly violates the rules. Hello we are from the government and we are here to help you-- strikes again!

My understanding is that it is does create an RMD for the year of termination, and the RMD amount, which was part of the rollover, is then not eligible for rollover. The participant asks the rollover receiving account to return the RMD amount to the participant, or (if I correctly recall early threads on this topic) if there is still enough remaining in the participant's plan account, it could be distributed to the participant in cash from the plan to cover the RMD for the year the participant terminated. GMK's understanding is my understanding also.

This is like a scholar citing his prior works to show how often his works are cited!

It can be a pain and mess but does any of this allow the person to make loan payments via personal check? If so, can the loan be kept current via method?

If they set the precedence of ONLY using billable hours in the past you might have to live with that. One would hate to find out that someone was excluded in the past because only billable hours was used and you now want to include someone using billable hours plus something.

One other insight: It is most likely obvious he worked at least 1,000 hours. Do you really need to know more? He most likely billed over 1,000 hours. So if this is like most plans this person clearly vests, gets a contribution, enters plan which is triggered by a 1,000 hour threshold. Attorneys work those kinds of hours is basically a given isn't it? Having said that I still think amending the plan is the right thing to do.

For what it is worth this is one of those issues where drafting the document correctly matters. This question ought to be answered in the document but i admit it isn't often times. For 2015 it might be too late but I would recommend amending the plan to clearly allow an equivalency method. I think a very strong case can be made that if the document says use actual hours you can't use an equivalency method and the plan sponsor needs to come up with a way to determine actual hours. Having said that I have seen the plan sponsor coming up with what they think is their best idea of the actual hours. But once again this is a flawed document design in my opinion if the sponsor isn't going to track actual hours and have a plan that says use actual hours.

Actually part of your issue here is you don't appear to understand what "received" means in this context. The IRS rule is consistent with the Constructive Receipt Rule. https://www.law.cornell.edu/cfr/text/26/1.451-2 The moment the check is written the money was "set apart" for him he is considered to have received the funds. So the moment the distribution is made he did in fact receive the funds legally speaking. The fact the person didn't have physical possession of the check is irrelevant. Your comment indicates you think it could be important. So for example if the check was written on 12/31/2015 and put in the mail on that day but the taxpayer didn't get the check until 1/4/2016 per the Constructive Receipt Rule the taxpayer "received" the funds on 12/31/2015. Or as the IRS said and you noted in bold in "the year in which it was distributed". In the IRS's mind distributed and received always happen on the same day so it always happens in the same year. So as you described the facts BOTH the distribution and receipt of the funds happened in 2016 so it is 2016 income. The above link and explanation gives you the legal details behind all of this and I share it for that purpose.

​A reasonable question, the answer to which is companies in parts of the country where you don't need to make 120k to keep from starving. I know the government writes regs, rules, etc. based on their assumption that the cost of living is uniform across the country ... but (spoiler alert) it ain't so. Too bad they think that it's too difficult to factor real-world pay diversity by region into regs. (thanks for letting me soap box) I actually live in a fairly low cost Midwest city so I know what you mean. Having said that most officers in companies even in this area are HCEs. The not for profit fact makes sense. I have seen plenty of not for profits that don't have any one making enough to reach the HCE limit.

To be a little cynical here but who makes an NCHE a trustee? I guess it could be the new CEO and since there is no look back pay they aren't an HCE. But if that is the case I would think about it a little harder. Maybe it is all fine but that seems like an odd fact pattern to me.