ESOP Guy

I agree not a retire as you describe it.

This strikes me as the "devil is in the details" kind of question. Are the plans that are ending being truly merged or are they being terminated and the people have a choice to take the funds or put them in the new plan? If it is a merge (the employees have no choice their money is going to the new plan because the trustee/sponsor said so) then I would tend to agree such characteristics as ee vs er have to be preserved. (In a merger if there is a source of money that required spousal consent that would have to be preserved also.) If the plans are being terminated and the people have a choice to take the money run, put in an IRA or the other plan that would be a rollover source. There might be other factors that could influence this decision but that seems like the most important one. (Lou must have answered while I was typing and I didn't notice it)

What costs are required to be paid by the plan sponser and what cost are required to be paid by the ESOP? This is the good old settlor expenses vs plan expenses question. Here is a good start http://www.dol.gov/ebsa/regs/aos/settlor_guidance.html Another: http://benefitslink.com/articles/expenses001213.html

It would have to be a redemption of shares-- cash from the company. or A contribution from the company-- obviously cash from the company or A dividend from the company-- cash from the company So you are correct you rarely see in ESOP pay the expenses in you fact pattern because it will tend to always really be the company that pays. It is just how will the expense be "allocated".

jpod everyone understands the issue but the IRS and DOL seem to take the issue seriously. You have to pay the expenses by the rules. Although it should be pointed out that in total you are right. It doesn't make a difference. Every dollar spend at the corporate level would reduce the stock price a bit. It could make a difference in the by person breakdown however. How you allocate expenses per the document might not lead to the same account balances if you paid the expense via the company and the stock price went down. Where this comes up the most (or it is the most obvious) is when the company is sold and you are working through the issue of getting the final proceeds to the participants. Since the company is no longer functioning and bringing in revenue every dollar spent at the corporate level is one less dollar that goes to the stockholders. Which as you say if that is the ESOP and the stock is the ESOP's only assets they tend to be one and the same in total. Like I said it might not be the same on a by person split although.

Did anyone hear something? At times I think I hear austin3515 but then I realize it is Tom Poje!

If the ESOP does end up paying then "yes" these costs would need to be reported on the Form 5500. I would add there are some costs that the DOL says can only be paid by the plan sponsor although this doesn't sound like any of those types of costs.

Are you dealing with building trade unions by chance? The little I worked with them then tended to have provisions like you are describing because the union employee could work for contractor A for a week and then contractor B for a week. They all pay benefits into a Taft-Hartley plan. So they compute everything on a weekly basis and make the company pay that way to keep the accounting simple. You work the guy for a week you pay that week's wages and benefits. As K2retire said they weren't even thinking ERISA when the contract was being written.

Yes, we do it every time even though the person doing the audit (or at least the partner in charge) is the same in each year. The way we read the instructions at our firm says you have changed auditor since it the firm that signs the auditor's report not the person.

We have plenty of small ESOPs as clients that don't have audits done and rely on the small plan exception.

Even though the example is on a fixed dollar amount the whole passage ends with this: What does your plan say? Although not common, a plan can specifically require that salary deferrals cease once a participant’s compensation reaches the annual limit. If your plan specifies that salary deferrals be based on a participant’s first $250,000 compensation, then you must stop allowing Mary to make salary deferrals when her year-to-date compensation reaches $250,000, even though she hasn’t reached the annual $17,000 limit on salary deferrals, and must base the employer match on her actual deferrals To me that makes it clear that in their (IRS') mind your plan has to specify that deferrals be based on the participant's first $250,000 compensation to get the result the auditors are talking about. I am with Austin at this point enough evidence has been given to support the belief of the people on this board. It might not be enough for the people who are asking the question but that says more about them then the evidence.

We use Millennium Trust in Oakbrook, IL for all our force outs to IRAs.

In my situation the Plan doesn't allow Dollar Elections. Whole Percentage Elections only. I would ask the powers to be to change that in the plan if they are going to also use their compensation interpretation. That would be a cheap and easy amendment and 401(k) plans should have that kind of flexibility any way.

I agree the prime rate is now 3.5% so prime plus 1 is 4.5%. I also agree with Bird prime is NOT announced by the government but set by banks. In fact i have seen some documents and/or loan policies specifically say that the plan is using prime as published in the WSJ for any given week. http://www.bankrate.com/rates/interest-rates/prime-rate.aspx

WCC unless you just don't like changing net checks during the year why not solve this issue going forward by deferring say 7% or 8% of pay? (I didn't do the math but defer a % that allows you to get to at least the dollar max either way). I think the auditor's are wrong but some times being right isn't as important as getting the right solution. I get that this results the withholding not being even through the year as you will hit the 4012(g) limit during the year but it seems simpler then fighting with auditors.

I am assuming this question is related to your other questions about loans and plan mergers. Not sure if this helps or not but if the new company simply doesn't want to offer new loans I believe you can amend their plan to allow the existing loans into the plan and nothing else about loans changes. So it can be drafted such that no new loans are offered, you can't refinance the merged loans and so forth. The existing group of loans are simply grandfathered into the new plan. Once this set of loans is gone there are no more loans. Would that make the new company more open to allowing this set of loans into the new plan? I am just trying to figure out why so much resistance to allowing this group of loans into the new company's plan I guess.

I would go back and double check the promissory notes also. Back when I worked 401(k) and ESOPs some of the 401(k) TPAs I worked for wrote the promissory note such that if the note was not paid back via payroll deduction the note was immediately due. It was not a plan term that was an issue. However, a promissory note is a contract and to pay the note any way other then via payroll deduction was a breach of contract. (edits to fix a few unclear sentences)

It's gotta be good! Either that or none of the people writing on this board qualifies as a "leading benefits attorneys and advisors". My ego is crushed.

I did miss the part about the involuntary job loss. I guess I didn't read well. Although I seem to have gotten stuff in the mail that would pay my credit cards off in case of job loss as well as death and disability over the years.

Just a guess but since it only covers death and disability it sounds like so form of life/disability insurance product. My guess (once again) is the benefit level is set so you are made whole after the loan default but I guess if it pays fast enough it would allow you to pay the loan back before default. Yes because what this world needs is more credit life and disability plans!!!

Investment choices are a benefits/rights/feature that must be offered in a nondiscriminatory manner. it is all part of the 401(a)(4) rules. https://www.law.cornell.edu/cfr/text/26/1.401%28a%29%284%29-4 (Edit I had said the rules were 401(a)(1) I quote the 401(a)(4) rules which are the BRF rules)

Let me be more precise. What isn't it wages for a hour(s) worked? Once again you actually have to show up and work your first day to collect a signing bonus. I have never seen a signing bonus that is paid if the guy shows up and says, "I am here were do I sign for my bonus-- oh thanks for letting me sign I quit mail me my check!" You have to actually perform some labor in order to get that bonus. In all the years I have worked in this field this is the first time I think I have had anyone try and make the case this isn't just simple wages. I have never seen someone try and make the case this group is trying to make that you can exclude it as a fringe benefit. To me it is W-2 wages if your plan uses any of the safe harbor definitions of compensation it has to be included.

Why isn't this just compensation? Despite the name you really aren't getting paid to sign on but to show up and work the first day. So why isn't this just compensation for worked performed?

I am not an expert on DFVCs but it is my understanding that yes it is too late. Once you have the letter saying the amount of the fine you can't use DFVC. But I am willing to be told I am wrong on that. On the other hand if it is determined that it is too late to use DFVC I would ask for a waiver of the penalty. Over the decades I have had good results doing that. If you can show there isn't a pattern of missed forms and give a good reason for why this form was missed I have had the penalty waived every time. I really think I am batting 1000 on getting the penalty waived. I will admit I have never tried it with a form filed this long after the deadline. But to me it will cost the client maybe a few hundred to pay you to write a good letter and it could save them $8800 is a good cost/benefit/risk ratio.

I don't understand why you would pay out more money. As you say the correct amount has been paid out. Aren't there really two problems here: 1) The 1099-R was wrong in terms of how much it said was taxable. So isn't the solution to that to file a corrected 1099-R? The person would need to file an amended 1040 to get back the excess taxes paid. (If the 1099-R was issued to long ago that they can't amend I am not sure I wouldn't let a sleeping dog lie as they say) 2) The amount of basis on the recordkeeping system needs to be changed to reflect the amount of the correct after-tax basis that should have been paid. I guess if the after-tax money is in a separate daily account you might need to do a transfer to get things in the right place. I would have to think about that more. Once again I can't for the life of me see why you would send more money from the plan. That seems to make the mistake worse as you now have paid more money that was needed to pay the distributions. That really seems like you would be going in the wrong direction.