ESOP Guy

If you are friends with an auditor you might want to ask them about this. While I don't think there is a rule there might be a practical limitation. Something in the back of my mind says that a year from now when they do the audit they have to audit both years to give an unqualified opinion. Otherwise you have a mix of audited and unaudited FS. I think that is a problem. My memory could be wrong but a quick call to a friendly CPA might clear that issue up.

If you want to get academic about it the whole collateral idea is silly. Even in a balance forward plan the loan is self collateralizing. If you default on the loan your account balance goes down by the amount of the loan defaulted. The plan and no other participant can suffer a loss. In a daily plan it is all the more obvious no one is hurt. The only possible exception to this would be those very rare balance forward plans that had the loans as part of a general bond/fixed income fund and thus the loan was a general asset of anyone in the plan. But those were so rare back in the day of balance forward plans and now my guess next to none exist. To use an extreme example that violates the rules. If I have a $10,000 account balance and I got a $10,000 loan some how then defaulted how would anyone suffer for the lack of collateral? My account balance would go to zero the same as if I had just gotten an in-service distribution of my whole balance.

I would include them also. I would also agree they help your coverage test as they would be HCEs and not benefiting. I would answer the same way if they are excluded by a 1042 election.

The short answer is "yes". An ESOP can buy more shares even if 100% owned. The hard issues here are the fiduciary issues. You can't make any of these changes for the benefit of the corporation. You need to be able to show that the CURRENT participants are benefiting in order for the fiduciaries to be able to sign off on of this. The DOL takes the position the participants need to be better off. They do not count future participants. You will want to study up on this in regards to the loan refi: http://www.dol.gov/ebsa/regs/fab_2002-1.html This talks about how you might want to give "sweeteners" to the current participants to show that it is in their best interests-- in regards to the loan refi. Such as better diversification rights, more match in the 401(k) plan.... I have also seen where the plan was required to stop using the S corp earnings distributions (dividends) to pay the loan and had to leave the cash in the plan for the participant's benefit as the "sweetener". By the way other ideas to think about is you could seek to have the loan principle written down to a level that doesn't cause an issue with 415. This would be most easily down if the loan is an internal loan with the company. Not sure why you want to increase the amount of the loan here as that would seem to work against what your primary problem is but I guess if the term of the loan is long enough it doesn't matter. Lastly, there is growing debate on how long you can go out with the term of an ESOP loan. We are seeing more and more 40 to 50 year loans. There is growing concern that is never a sound fiduciary decision. For example since this is a refinance and let's say you are going from 10 years to 50 years (to be extreme) a current participant is going from could realistically work the whole time to share in every share release to that no longer being true. Is such a change in terms ever really in the current participant's best interests? I would strongly recommend you get an ERISA attorney that knows ESOPs and not just any ERISA attorney before you do this. (edit was a few changes to make more readable)

Great it will just give my clients a reason to wait another month to send me their data.

I am not trying to be mean here but I get a chuckle out of this kind of question. You will have until 12/30/2016 to get the money out but might not be able to do so but the New Year's Eve weekend is when the big push will happen to get it done????

Yes that allocation language is designed to make sure the plan always passes coverage. Bird is correct. Someone who terminated and worked >500 hours already has a right to an allocation. I think it is best to make the change effective 1/1/2016.

Then it is a good thing you went to work for the competitor because your former employer is either too stupid or greedy for you to want to work for them.

In the past, I would include earnings in the amount removed. Someone is now questioning that method. Is there anything that requires me to include investment experience along with the over-match amount? I am trying to figure out what the difference between "earnings" and "investment experience" is. Is earnings using the DOL rate and investment experience the actual earnings? If so, I would think in this case you would use actual earnings.

Not trying to be rude here but I would like to ask one more question because I am shocked someone would try this. When you say ESOP you mean it is an Employee Stock OWNERSHIP Plan and NOT some kind of stock OPTION plan correct?

Then as others say that would violate the law. The reason I asked was because what they are doing is such a well known wrong I am having a hard time believing that any lawyer would ever agree to the idea. Maybe make sure you understand it correctly once sure of that you will need to decide on the next course of action. However, the rules are clear that they have to pay a vested benefit.

Are they saying you will get no benefit or you simply can't take your benefit in the form of stock? I am reading your description as the former and not the latter. I read your description as it is your understanding you will simply never get paid, is that your understanding? Thanks

Is a recordkeeper's QDRO-review service worthwhile? Yes. I find that the plan administrator often times needs someone to review the QDRO. Maybe it is because I work in the TPA world I find our reviews are better then the attorney's. While the attorney is often times very sharp on the law they tend to have never had to deal with the practical aspects of QDROs. Just read a random selection of QDRO questions on this board. What at first glance seems like a reasonable description that is very specific on who to split the accounts often times isn't very clear when the TPA looks at it. Simple example that happens all the time with ESOPs. Since most attorneys are used to 401(k) plans that are valued daily we get ESOP QDROs that will say split the account as of 9/8/2015. The reality is the valuation only happens once a year for most ESOPs and if it is a calendar year plan that mean the last annual work was done 12/31/2014. So do we split the account as of the 12/31/2014 value as that is the value as of 9/8/2015 (my preferred answer by the way) or do you reject the QDRO as not having a good enough description of how to split the account (the preferred answer of some of my co-workers at this ESOP specialized firm)? Like I said to many attorneys why wouldn't you give the date of the divorces as the date to value the account for the split? To an ESOP TPA that causes issues. An ESOP TPA will note this on a review every time. Even when I review a QDRO while I think my answer is good I note the issue in my review for the plan administrator to decide if they want to reject the QDRO or not. Back when I did 401(k) plans I found often times an attorney signed off on a QDRO only to have me start to ask really good questions that pointed out that the order isn't clear on earnings from the date of split to date of payment and I could go on. Once again read all the QDRO questions on the board and you see real quick a lot of practical issues get missed until the TPA is forced to deal with the QDRO.

A TPA should keep the sponsor informed of what is due. They can keep the people informed about the penalties of not paying. I once had a client back in the '90s that hadn't deposited 401(k) deferrals for years. Other then informing people as for as I am concerned I didn't owed the participants anything else.

A little off topic but I guess this means (at least in this case) all those new fund disclosure rules aren't working!

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.