ESOP Guy

I think you can put a D. Here is how I would decide. If the partial payment is part of a series of payments-- even if not an annuity I put the D. It is common for ESOPs to pay people over 5 years. I put the D after the first payment. If the partial payment was a one time event I would not report the D to try and help the person get a reminder they are do more in the future. We have a fair amount of debate around here on ESOPs and the 1st of the 5 or the 5th of the 5. Also, of the 5 stops do you put a new A out there or not. I have yet to see a fine for a bad code so I think anything reasonable will work. Be consistent.

the other thing to remember is this person would still be in the coverage test as includable but not benefiting. That may be obvious but thought I would add that.

When you distribute cash and stock the withholding is the lesser of: 1) 100% of the cash or 2) 20% of the distribution (like normal) Or put another way you don't have to sell shares to get to the 20% but the withholding requirement is still there. Honestly it has been so long since I did an after-tax distribution I don't recall if you withhold 20% on the after-tax basis. But the rule is simple. Compute the 20% like you would assuming it was all cash being paid to the person. (The amount to the IRA doesn't count obviously) Then apply the limits above. On the stock I believe it is just the cost basis that counts toward the 20% not the total FMV.

I agree it sounds like the recordkeeper is confused about NUA and after-tax basis. I don't see how they can use the after-tax basis to lower the taxable amount on a portion of the plan that the after-tax wasn't invested in also.

Are they returning part of their fees by doing this? If so, would be a reduction of fees? Does the auditor have an opinion? If it isn't material other income might work or like I said net against fees also work. I would see if the auditor has an opinion.

The question is confusing. Is there a 401(k) plan and an ESOP or is it a KSOP? If there are two plans was the After-tax money put into the 401(k) plan or ESOP? If there is only one plan was the After-tax dollars used to acquire ESOP shares?

One of my former employers (A very large benefits/human resources consulting firm) used to offer as a service taking your business out to bid and helping you review the bids to find the right service provider. They also did work on those size plans. (They never allowed their own firm to bid on the project if they were consulting). One can't know for sure without details but that price tag sounds high for a 1,200 life plan. You might want to put it out for some RFPs just to see what happens with or without a consulting firm helping you. Hope I am not offending my fellow TPAs out there by saying that.

What kind of plan are we talking about here? A DB, 401(k), ESOP???? That could make a pretty big difference. However, if I am doing my math right your are paying around $114,000/year for this plan-- is that correct?

The only part I feel qualified to speak to is if the new company is going to be a S Corp it can't be done. An IRA can't hold S Corp stock and an ESOP is the only qualified plan that can hold S Corp stock.

I am with Peter on this one. Has a request been made that the people who over charged pay the people back? Not sure the fiduciaries can escape problems by throwing money at the plan.

Although do check the document. I can't remember the last time I saw a document that doesn't cover rehires in almost every situation. I say this because so for this conversation is talked about the legal rules. I have seen plan documents that pretty much say "once a participant always a participant" and the person enters upon rehire basically always. You can write a document to allow for more generous rehire entry provisions then the law requires and like I said I have seen it.

Maybe some kind of business transition happened and it is easier to wipe the slate clean??????

I would suggest it might not require a PT for the trustee to act. Two examples I have seen and as far as I could ever tell (i was an observer not in all the meetings) even of 404c the trustee has an obligation to make sure the investment is suitable and so forth. I once belonged to a 401(k) plan that had self directed brokerage account. You couldn't buy the pink sheet stocks some kinds of thinly traded preferred stocks. As far as I could tell the trustee with the brokers help had decided these investments weren't suitable. I also once saw a small dentist practice that allowed all the employees to have a brokerage account so the dentist could. The CPA firm I worked for after reviewing all this as part of their investment advisory practice made changes. One of the changes they made was force one of the dentist's employees diversify. She had put 100% of her retirement funds in Ford stock. (odd thing was she made great money-- she had bought near the bottom in the 2008/2009 time frame. It didn't change the fact she had put all her eggs in one basket.) In that case I know the justification was even under 404c people felt the investments offered were not suitable. 404c isn't a blanket coverage the that says the trustee can't be called out. I know they have to look at the people's choices and decided the choices are in the universe of suitable choices. Can a case be made this partnership isn't a suitable choice? Just to be clear this part of retirement law isn't may strongest area of knowledge but the above is my first reaction to this question. I give the advice as something to look into more then saying I think I can win a legal case.

You need to better define "freeze". Depending on what (if any amendment) has been done it might qualify as a type of plan termination which would vest everyone. If the employer is merely not going to make any more contributions and require share distributions then it might be a few years before you have to vest everyone.

The due date of the SAR is extended with the Form 5500. So it is 2 months after the extended due date of the 5500 if it is extended.

I am sorry I just re-read the question. Are you saying they did it while the plan didn't allow it? That is to say there was an operational error? if so, you should check to make legal thinks this can be self-corrected vs needing a VCP filing.

Not really. While not common it isn't rare to see such a thing. Most of the issues tend to be discrimination rules-- you say some are allowed. Make sure the some aren't in effect all HCEs. That is a benefits, rights and features issue. Obviously, more distributions can mean the company needs to put up more cash for those payments. i am assuming this is a private company. A good liquidity study should help you quantify that issue. Make sure the plan document allows for it. That is plan 101 but it is stunning to see how often plans do things not in the plan. In effect this is nothing more then a type of an in-service distribution rule in an ESOP.

Thanks for the update.

I agree you get the same due date but I think the Form 5500 instructions in fact do answer your question. http://www.dol.gov/ebsa/pdf/2014-5500inst.pdf Section 2 says: For purposes of this return/report, the short plan year ends on the date of the change in accounting period or upon the complete distribution of assets of the plan. So I read that as saying 9/10/2014. It would seem like if the plan is audited that is when the auditor would date his report as there is nothing to audit beyond that date.

What happens if I join Company B tomorrow, wouldn't they have to count my service with my prior company since it hasn't been 5 years break in service? The answer to that question would be "it depends". There are a lot of factors that go into that one. Why the merger happened? If the company was purchased was it a stock purchase or an asset purchase? What does the new plan document say? I wouldn't worry about it until or if you go to work with the new company. If that happens I would raise your questions with the HR people and make sure they go to the experts (most likely an outside third party administration firm) to get the answer as the answer will depend on a number of factors. You can forfeit someone before the 5 years is up. It is just if you go back to work for the company (and does that company still exists?) before the 5 year break happens they would have to restore your account. That assumes you didn't take a distribution which sounds like you have not do that. So if you go to work for company B you might want to ask about being restored but I would not hold my breath on that one.

You mean you don't have your tax returns from 1999 and before? (fyi laughing with you not at you)

I has been a while since I have had a plan small enough to worry about TH issues but I believe if the Key gets a forfeiture allocation that counts. As Lou said if the rate of allocation for everyone is the lessor of 3% or the highest allocation still no problem. So if the forfeitures are allocated on compensation/total compensation it should be ok but don't lose track of those forfeitures-- if I recall correctly.

I am not sure what the attorney showed the IRS (I am the TPA) but in the cases I am talking about the penalties would have been several multiples of the cash on hand and even several years of total net profits. One of them was a 409(p) failure in an ESOP. There is a reason people joke about 409(p) failures being a nuclear bomb of failures. The penalties will easily exceed 100% of the value of the ESOP and in this case the ESOP owned 100% of the company stock. So the fines would have been over 100% of the total FMV of the company. I understand why they have the 409(p) rules. I don't understand the penalties for a failure. No one in their right mind is ever going to make you pay the actual fines. The IRS is going to always settle for less in a VCP. They were pretty extreme cases and it was obvious.

I have only worked with a few John Doe VCP filings but they all happened because if you fixed the problem by the letter of the correction methods it would have bankrupted the company. Or put another way the IRS really had two choices from my perspective 1) Say we are going to insist the company go bankrupt-- to which since it was a John Doe filing the company simply would have taken its chance in the audit lottery. What did it have to lose? If they get caught they go bankrupt the same result as the VCP or they don't get audited and they live or 2) The IRS settle for something that hurts but leave the company intact. The end result has always been the same. The IRS agreed to something that didn't put the company out of business. As far as I can tell a lawyer doesn't charge that much more for a John Doe fling over a regular VCP filing. That is the route I would try if the problem is that big.

The only other thing I can think of is to replace the town house with cash equal to the appraised value (assuming he has cash available to do that) and have the deed transferred out of the plan's name to his name. Not an expert on this topic but I THINK you can't do that. That seems like that would be the plan selling an asset in a way that would create a PT.