ESOP Guy

Not the way I see plans written. If you find the definition of the Year of Service the 12 month period is just the period you look to see if the person worked 1,000 hours. Here is an example: The term "Year of Service" means, with respect to any provision of the Plan in which service is determined by the Counting of Hours Method, a 12-consecutive month computation period during which an Employee is credited with at least a specified number of Hours of Service with the Employer.. So the 12 months is the period you ask did they work 1,000 hours. It doesn't require you to work all 12 of the months. It is a computation period as it says. I typically explain it to my clients this way: We just look to see if 1,000 hours was worked during that time frame we don't need them to work all 12 months. Check some of your client's documents and see if that isn't how it is defined.

Part of the problem with your question is you don't say where the sinking fund is. Is the sinking fund on the company's books and a corporate asset(s) or is it inside the ESOP? If it is on the corporate books and their balance sheet the Qualified Plan rules don't apply. There can be corporate issues like is management running the business in a prudent manner..... But the ESOP gets no say and the ESOP rules get no say. If the sinking fund is in the ESOP than the rules for investing the funds is no different than any other qualified plan. It has to be prudent, for the exclusive benefit of the participants all those fiduciary obligations you have with a balance forward profit sharing plan or a DB pension plan. The one issue that is different is timing of payments. A DB plan knows some of its benefits wont' be paid for decades so buying a 30 year bond with some of the assets can make sense. If the ESOP knows it will need all the cash in the next 5 years is it prudent to be 100% stocks or crypto? I would tend to think that is too much volatility for that time frame. You go to ESOP conferences and you can get a pretty good debate over if an ESOP can stick to money market funds and maybe a little balanced fund since they are using some of the cash each year. I think you aren't find guidance because it doesn't exist. The rules here are the same as any other balance forward qualified plan . I would add if they are trying to out grow their repurchase obligation using crypto that could be questioned if the investment is for the exclusive benefit of the participants or is it in part for the benefit of the company. In a balance forward environment I don't see how you put something that volatile in the plan. Look at some years at how different the value at the prior 12/31 was compared to when they would be most likely be paying a person's cash balance out later in the year. It isn't too bad in a year like 2023 where it went up by a fair amount but in a 2022 where much of the crypto crashed late in the year could be sticking the remaining people with a lot of losses.

Most likely the answer is "yes". But read the base document if it is a prototype or volume submitter. I am willing to bet it tells you exactly how to work out when such a person comes into the plan. I don't really see a good path to keeping this person out but the document rules and if it is at all written well it tells you what happens to a person who met the eligibility requirement, termed and is rehired.

This really is the only answer that can be given. Some plans have the 5 break language in it and other don't. I would add the rule of parity could come into plan if either of these people had a vested balance while in the plan before. A good plan document will spell out how to handle rehires clearly. Some don't and I consider them poorly drafted by definition. But the document is your friend here.

I think you need to look at the "significant detriment" rule. https://www.law.cornell.edu/cfr/text/26/1.411(a)-11 I quote: (i) No consent is valid unless the participant has received a general description of the material features of the optional forms of benefit available under the plan. In addition, so long as a benefit is immediately distributable, a participant must be informed of the right, if any, to defer receipt of the distribution. Furthermore, consent is not valid if a significant detriment is imposed under the plan on any participant who does not consent to a distribution. Whether or not a significant detriment is imposed shall be determined by the Commissioner by examining the particular facts and circumstances. It is my understanding singling out just terms for a fee can run afoul of that significant detriment rule. https://blog.acgworldwide.com/charging-fees-to-terminated-plan-participants-okay-in-some-cases This guy seems to think it is a problem. The employer charges an account maintenance fee that applies only to terminated employees. This fee is not associated with any service performed for the plan. It’s just a way of encouraging former employees to move their money out of the plan. Such a fee does not appear to be permissible. You might want to Google the term significant detriment and see what you come up with. Hope that helps.

I wondered about the exclusive benefit rule myself. Not only for the reason given by MBESQ but it raises the question that only the participants employed the year the one payment is made gets any of the shares released. However, the facts given are hard to follow. You might ask the agent what exactly is the concern.

They can invest it any place a qualified plan can invest the cash as long as it is prudent. In many ways if a Profit Sharing plan can invest the cash in a given place so can an ESOP. There aren't special rules I am aware of for ESOPs. It is the "prudent" standard that could get tricky. If the cash is going to be used to fund payments and the share are being recycled can there be a justification for more short term investments for example and still be prudent? You can get a pretty good debate with that question at an ESOP conference.

Are you saying the original loan was set up for no payments until the 10th year and then the loan was going to be fully paid in that year? Are you also saying by that the 10 years aren't up but the IRS agent wants to disqualify the plan because the loan has only one payment at the end? I just want to make sure I understand.

Congress often times takes a sledge hammer to fix problems that need something more surgical. Take RMDs for example. I get not wanting people to pass on millions generation to generation without paying taxes. So you require taking money out. So what do we get is a complex set of rules they can't leave alone with no minimum or other levels. So years ago a plan that refused to force anyone out sent about $0.75 RMD check to one of their participants becasue that person's balance was that low and just refuse to take their money. They also refused to cash the RMD check.

Yes I once way, way back in the '90s and I was just starting I worked on a client that was a dentist. He had himself and 2 employees in that practice. He also owned a hobby farm that he lived on but had 3 farm hands. He owned 100% of it all. All one big happy controlled group.

I once worked for a company that allowed brokerage window in the 4k plan. The one restriction was you couldn't buy the employer's stock. They didn't want the brokerage window to be a way around the restrictions on company stock in the plan. You example might be harder to get a broker to keep a list of stocks that can't be bought and having to update it regularly but that might get to the same place it seems like.

The ones I see say it as simple as: Any fee for processing the QDRO for the plan administration shall be split 50/50. It might be a little tighter in the legalese but it is clear whatever the cost is the split is 50% each.

I have seen QDROs that specifically mention which or both parties pay all such fees from their benefits. That presumes the plan allows it.

You might want to search the term "real estate" on this board to see all the problems RE can cause in a qualified plan.

That is not allowed. The reason you are confused isn't a matter of pension law but employment law. You are either an employee (W-2) or an independent contractor (1099). Also, this isn't something that can be negotiated. Federal law defines if a person is an employee or not. The law isn't very clear but that doesn't mean the two parties get to make it up. I would start by getting the client to talk to someone who knows employment law and get it cleared up what these people are. Once it is determined they are an employee or an independent contractor I think you will find your issues pretty much go away. The only exception to the above could be if they are a type of insurance agent. If they are that let us know.

This is my impression. Before you filed these electronically their input on the part of the government was hit and miss.

A big issue is estate will almost always need to get an EIN and it might be the entity that pays taxes on the distribution. The estate gets the 1099-R in its EIN for example. This process can slow down paying the distribution while they get this all worked out. If it causes the plan to be open another year it can cause plan fee to be higher. Whoever is in charge of the estate needs to hire the right tax people to help them. The deceased didn't do anyone any favors by not having a beneficiary election and allowing it to go to the estate. The extra legal, tax advisor fees plus possible extra taxes could be a real bummer.

I think Millennial Trust Company will set up an after tax account for people. But being sub $1,000 the fees are going to eat up the account. I would make sure the plan document allows for what you are doing. I know the DOL doesn't like it but most documents I see still say if after a good search you forfeit the balance in the plan. It would be nice if the government gets its act together and they set it up so the PBGC could take DC money for lost participants. Seems like that has been talked about for years.

If it is determined the estate is going to be paid things can get messy fast. For example the estate might have to get its own EIN. After all the estate is being paid and that is the entity that could get the 1099-R. The beneficiaries of the estate might want to talk to a lawyer. I have been told, and you are about to hear 100% of what I know so I am happy to be told I am wrong, in some states if the estate is small enough you can avoid a lot or all of probate hearings and just pay out the beneficiaries. A lot of this is on them.

Someone out there must be saying this. This is the 2nd time I have heard someone say, "I just heard I can freeze the value of the ESOP account to the value of the year they terminated" in about a week. And I doubt my client is coming here to get a 2nd opinion after I talked about segregation. I don't know who is doing this but I am prepared to slap them upside of the head. The replies capture the correct answer.

By and large if the stock price has gone up and they are caught up by the next payment most ESOPs I see call it the day. I guess a case could be made they could have made money in the market if they got 50% instead of 100% but I just don't see too many ESOPs worry about it. If anyone here has seen an ESOP pay some kind of lost earnings I would like to hear about it myself. If the stock price goes down the story quickly changes. You then pay them the better of the old or new price. So if the price goes down you pay the higher old price.

1) No one here doesn't understand what you are saying. 2) We are saying we understand and we think it is a bad idea for the reasons listed. 3) I will add you are being too clever. Whatever savings you think is being gotten it is too little for the risk. Don't net like this. If an audit comes you have to spend a ton of tome explaining it and if they don't get it for some reason the client is in trouble. I mean how much can the saving be? You have most likely spent more time arguing for the idea here than it would take to do the two transactions. I am all for labor savings just not dumb labor savings and this one is dumb.

Start with your HR department and ask if they will get the money back for you. Did you keep a copy of the opt out form? If so, send them a copy. If you met the deadlines to opt out timely they might be able to help.

This is very true. I have seen examples where one party got the home free and clear (It was the wife. The kids were still in school and living with her) and the other party got 100% of the retirement plan assets. So to repeat go talk to a good domestic relationship attorney.

I am with Lou here. What is this money? Was it distribution check not cashed? If so, is that person owed the money? Maybe if I had all the facts it would be obvious the money has to be the owner of the plan sponsor but I would start with as a guide where was the money supposed to go 20 years ago?