ESOP Guy

I would say "yes". Every firm I have worked for would say you should say "yes" This is however something the plan administrator has to decide. Every plan document give the administrator discretion to interpret the plan provisions in a consistent and nondiscriminatory manner that doesn't clearly contradict a plan provision or the law. This is a classic example where that power should be used. The plan administrator should make a determination as to the answer to this question and document it. After that everyone should be treated the same.

deposited to state abandoned property account where state can invest the funds. Invest the funds so that is what they are calling spending money now?

It is my understanding the DOL frowns on escheatment. It is the firm I work for to always recommend not to do it. Part of the issue in my opinion is it is unfair to the participant as a practical matter. For example: I work regularly with a trust company that issues checks for our clients. They escheat outstanding checks after a few years despite the fact we have asked them to stop. They are located in a SE state. I have a large client located in a SW state. The bank escheats to the state they are located in. Why would someone who has lived and worked all their life in the SW ever check a SE state for lost money. This is being done for the convenience of everyone but the person due the money and that seems like a problem to me. I will get off my soap box now.

My guess is the plan document says what you are to do with lost participant funds. I can't remember the last time I saw anything other then you can forfeit the money and reallocate the funds. This is with the understanding that if the person is found you have to restore the account with current forfeitures and pay the person. I don't see how you can do anything other then what the document says for lost participants.

They have enough resources to monitor this. Several lawyers I know are saying they are seeing more letters to plans that don't make any contributions for several years in a row to justify why they shouldn't have to vest their people. This is a simple data draw from the 5500s. You don't report a contribution and say you have people who are terminating with a balance and are <100% vested. It is all automated on EFAST2 now. Simple data checks like this will be more common. To be clear I agree this isn't a qualification issue.

I would start by telling administrator what you are telling us and asking what is the acceptable evidence to get the needed hardship to stop a foreclosure from happening. The administrator most likely is sympathetic to your plight. It is just they have to balance your need with all the rules that govern plans. Failure to follow the rules hurts everyone in the plan and the company that sponsors the plan. So try and have a simple conversation with them and don't assume they aren't willing to be helpful.

Yes, just to be clear. My last comment not withstanding I wish you no ill will. I hope your fears aren't realized and your investment goes well.

I probability should not mention this but just to be clear interestedparty you are worried about some check for 10K? Those people handling your check get your annual payroll data. They know your SSN, how much you make a year, they most likely know your address. I could go on. I know the pay of every employee from CEO on down for every company I help run their retirement plans. (I work on exclusively on ESOPs now but got my start in 401(k) work.) I know their SSN also. If I am going to commit a crime with this information it isn't going to be from some guy who thinks $10k is serious money. All this information is needed to help your company run the 401(k) plan. Done wrong and someone is going to pay large fines to the IRS. I would add if the loan is set up wrong that non-taxable event turns into a fully taxable distribution. If you are under 59.5 you would get to pay the 10% penalty for taking a distribution before you are 59.5. If the payment back to the 401(k) loan is not done right it becomes a taxable distribution. More can go wrong then you think. The end results can have a bigger impact then you think. Lastly, like others I find it funny about the 10k. So you really think the people who work on your company's 401(k) plan make less then 10k/year? That is less then $5/hour.

I am saying I can't cite any authority on this.... What i would do is issue forms and see how many of the people you can find. For the one's you find give them their share of the money. For the one's you can't find (after using a search service) I would set up an IRA for them. Issue 1099-Rs. Be done. I wouldn't bother with a new Form 5500 or anything like that. With that much money maybe it is worth the trouble to open up an account in the plan's name to park the money so it is clear the sponsor isn't trying to benefit from it. In my 20 years of doing this work what I have found is these kinds of situations aren't even contemplated by the rules much less actually covered. I am hard pressed to see how either the DOL or IRS are really going to object to this. For one thing to do much more and a large chunk of the money will be eaten up by fees and how does that benefit the participants. Once again not saying that is the rules as much it is what I think is the practical solution.

I don't know if it is so much of a mandatory termination as it is there a plan sponsor any more? It isn't clear to me there would be a plan sponsor if the person is no longer in a trade or business.

Or search real estate in this board. Also you can simply move to it being a bad idea.

I think the better question is why do they want to keep the plan open? The plan document should tell you what to do with the two lost participant's account balances. If nothing else it seems like the conventional wisdom says you can always open an IRA on their behalf and send the money there. the plan document most likely says if the two are lost and you do a diligent search you can forf the accounts and reallocate their balances. Might have an issue now with 415 and other things like that as their is no comp to reallocate. That is why I suggested the IRA idea. So unless there are some assets that aren't liquid to sell quickly why not just shut the plan down?

You talk about doing a general test on an ESOP. You can do that for an ESOP it is just you can't combine it with the other plans. I have found that just using the general testing allows for rather aggressive allocation methods. Obviously I don't know your objectives but I thought I would throw that out there.

Took you long enough to get back to me as promised!

I am not sure about discriminatory issue but the plan fiduciaries are required to make sure the fees are reasonable. Are the people going to get $5,000/year worth of service from the advisor? I have been in a 401(k) plan with a self directed brokerage account since 2008 and the plan charges me an extra $50/year to have it. I am hard pressed to see what I would get for $5,000. My guess is it is discriminatory also. But that is more a gut reaction then something I can prove. All and all I would rate the idea as a bad one.

I agree. I just added my comment because the original question was about the maximum amount he could take.

I would add that based on what we are told here I would think the person could take 100% of his account balance is they so wished. They could take about $100,000 in cash and $30,000 as the loan in kind. So the taxable amount would be about $130,000 and the cash they received is $100,000. Unless there is something in the plan document that says they can't take the loan in kind I don't see any reason why they can't take their whole balance. It just wouldn't all be in cash.

I agree the IRS question is at best vague on the point in this question. Can you pay more then the RMD? Yes. I agree. If you complete a set of distribution forms because you are terminated and the plan allows for lump sum you can pay the RMD and the rest of the balance. If the plan allows for an in-service then you can pay the RMD and the in-service. Those last two sentences are a perfectly reasonable reading of the IRS' response to the question. Until I see something that says the RMD language alone allows you to take more then the RMD I stand by my opinion. I see the other people's point but I think that is not the best answer.

I think most of this topic has been covered. However, I am having a hard time seeing how you (prog or whoever) is making the leap of accepting a form equals saying it is valid and nothing can change that fact. Simple example: We receive distribution forms all the time. We mail out hundreds of them for some of our larger clients and they come back by the dozens in the first few days after the mailing. Does accepting the forms really mean we have accepted the from is valid? I have never seen it that way. We have in fact gone back and asked for additional information when it is signed by a power of attorney or something doesn't seem to be in proper order. So you accepted the form. You had no reason to believe fraud had happened at the time. Now you do have reason to believe that and have changed how you are handling the issue. That seems prudent to me. Is it prudent expert? I am not 100% sure as I am not a lawyer that has seen all the case law on that topic but I just don't see how accepting the form equals you are now bound by that to the point the plan's sponsor and fiduciaries have can't change their behaviors as new information comes to light.

I know we have had this conversation but couldn't find the thread quickly. I am in your camp on this. You are only allowed to pay the RMD if there is no in-service language in the plan. I know there are some who are regulars on this board that disagree. In particular look at your plan's section on RMDs. Some point out their plan says the plan has to "pay AT LEAST" the RMD amount. Those who disagree with us will point to that and say at least means you can pay more. If you have the at least language and the administrator is consistent interpreting it as meaning they can pay more I can see that is a reasonable position but still not the best position. I am still of the opinion that the best position is to only pay the RMD amount absent in-service language.

To echo others: I have seen a few people try and run their taxable business through a qualified plan thinking it is a clever way to not pay taxes currently. It tended to end badly. Other possible issues you will want to look into is will what they are doing going to trigger any kind of Unrelated Business Income tax (UBIT) within the trust. For example if they used debt to buy the RE it will most likely cause the trust to owe taxes on the leveraged portion of the investment. You don't see UBIT very often so it can sneak up on people.

We send all of our Form 5558 without the street address via certified mail every year. No issues have happened. My understanding is (and it could be the wrong understanding) that with the 9 digit zip code the last part of the zip gets it done. That part of the IRS gets so much mail that only the section of the IRS has that last two digits for a zip code.

I didn't find a cite quickly. I am sure someone out there has it.

We always use participants who are eligible to receive a match. To be clear by that I mean people who had they deferred would have received a match. Or to put it in the negative the reason they didn't receive a match is they didn't defer. I think the rules are rather clear on that issue.

This does seem to be legal although depending on if you go get D letters and so forth or not might not be worth it.