ESOP Guy

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?

it has been a very long time since I have done 4k loans but I do think you have been doing it wrong. Here is the code. Notice in the highlighted part the highest balance over 12 months ONLY applies to the $50,000 limit. You see it doesn't apply to the 50% of the balance (blue line under it). What I have always thought stupid is that paying off the first loan and ending up with just one loan will just about always (maybe always) hurt the person wanting to take out the new loan .

What Paul is addressing is 409p testing. It is very complex. At the risk of coming across as a bit self serving but failing 409p can't happen. You need to get solid advice from an ESOP service provider who knows what they are doing to help you with the 409p rules. The family attribution in 409p is much broader than any other testing. But no it doesn't apply to 401k plans.

That would be my take on the facts above.

The term is accurate however. Here is the definition of a third party. https://www.investopedia.com/terms/t/third-party.asp If someone asks me what I do for a living and I think they want the polite short question I say: I specialized type of tax accounting. If I think they want a bit longer answer I give them a short discussion of what an ESOP is and what I do. But to tell a client we are their ESOP TPA strikes me as accurate and I would expect business people to know what the term third party means.

For Key and HCE purposes the shares in a person's account in an ESOP do NOT count. The cite above is good. Also think of it this way the shares are legally owned by the ESOP trust not the participant. They are a beneficiary of the ESOP trust and they have little say over how those shares vote for example. There is only a narrow set of events the participants in an ESOP must be given the right to vote "their" shares.

They are also a participant for most purposes other than accruing a benefit. So they have the same rights to notices, payments, loans.... as other participants.

As a tax person I can tell you now this will be fixed retroactively in a technical corrections law. After every major tax law there seems to be a technical corrections law that fixes this kind of silly stuff. The fact this kind of stuff happens so much is more proof of how rushed our laws are and how overly complex they are. But as long as this was a typo and not a decision agreed to this will be fixed without much to do.

Yeah that is why the DOL program that caps the fine is so important. It used to be you could try to ask for some kind of forgiveness but at this point the down side is too much. Likewise the filing a form without the auditor's report but a note is getting riskier also. That fine for an information return with no tax implications is just plain silly

That might be true for state law in MD but for purposes of federal tax law I would take the position this distribution is done. In tax law there is a concept known as "constructive receipt". The wife had control of the check even if for a short period. She had constructive receipt. I am confident the IRS would say the late wife had a taxable distribution. Most of the time once the check is mailed constructive receipt has happened. That is why a check mailed on 12/30 but not received say until 1/3 the following year is on the 1099 for the year mailed. The only question would be is if the husband can roll it over to an inherited IRA or not and I can't cite anything one way or another.

How many people are in the plan? Most plans I worked on with individual broker accounts are pretty small. It shouldn't be too hard to get proper plan forms. My first question does the form by the broker make it clear this is a plan asset or is it just some standard broker form? Just talk to the client and broker and make it clear since this is a plan rules beyond normal securities law apply here. I am not trying to be mean but what I hear is someones wants to add complexity and ambiguity because they aren't willing to get on the phone and make sure everyone is on the same page. I will get off my soap box now.

This has been true for a while. I have been convinced any plan that wasn't designed to be simple is out of compliance if you look hard enough. Part of why I got into ESOPs was they were more interesting than small 401(k) plans which is how I got into this industry. They have gotten so complex the chances of making an error are huge. And I don't know how some of you folks do small 401(k) plans any more. All the silly notices and disclosures that if you miss a simple deadline can put things out of compliance. The volume of them is beyond sustainability. And they add no value as no one reads or understands them. I am becoming a cynic I think.

It is going to help you retire by aging you prematurely.

There are way too many unanswered questions here in my mind. What kind of plan are we talking about? Was the DRO sent to the plan? Was it accepted by the plan as qualified and thus making it a QDRO? If that happened why didn't the plan separate the funds? What is your relationship to this? Do you work for the plan? Are you the ex-spouse? If you work for the plan does the plan document say anything about this? It might tell you who the Alternate Payee's beneficiary is if they pass before the benefits are paid. I would recommend start by talking to the people in charge of the plan and start getting basic information like this.

Depending on the amounts and if the plan allows forfeitures to pay plan expenses will the cost of filing the back 5500s eat up the funds? That might be a lot easier than finding the people.

I would add a well thought out amendment to the vesting schedule would cover this fact pattern. In the last 5 or so years I have had two clients amend from a 3 year cliff to a 6 year graded schedule. I asked for a change to the amendment before it was signed that makes it clear that we will look to a person original hire date to determine which schedule they will be on if they are rehired. Both of these firms have thousands of employees and they have a lot of rehires. It was decided it would be easiest to track if we looked to original hire date to decide which vesting schedule to use. If the amendment is silent on the topic I would agree with Cusefan that the years of service should apply to the new vesting schedule is the most reasonable way to read things.