ESOP Guy

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.

I think it is one thing for the money to end up in an IRA because the person rolls it all or more common the person take some kind of in-service distribution and then terminate and it so happens to be the year they are 70.5. It is another thing to make the plan be send 100% of the money to the IRA and let the IRA worry about the RMD. That is a plan risking disqualification on the actions of the IRA company. I agree a mistake will most likely not end up being fatal. A bad plan that seems to purposefully ignore the rules strikes me as playing with fire needlessly.

I don't think sending the funds to the rollover institution is even allowed. If you read the regulations on this the 1st dollars distributed from the plan in the year an RMD is due is the RMD. Those dollars are (edit) not (edit) allowed to be rolled over.

Actually the whole RMD thing is a great example of taking a sledge hammer to a problem that needs tweezers. I get it you don't want people who have large balances to keep it in tax deferred accounts for various reasons. What we got is one of the most complex set of rules in the whole field. Just look at how often there are questions about these rules. Then after all that in the 20+ years I have done this I can't tell you how many <$100 RMD checks I have helped get issued. And I won't even talk very much about the number <$1 RMD checks I have seen. Compared to the RMD checks from say accounts with >$100,000 the numbers are a joke. So much time, effort and cost to solve a problem that happens not very often. They could repeal the law and I am convinced they wouldn't see much change in total tax revenue from the money kept in the plans.

To freeze a plan takes an amendment so I think the employees will be notified of the plan being frozen when they get the SMM. Yes, if the plan is frozen (an odd term for any DC plan as frozen would seem to mean no more contributions will be given and maybe no one new will be allowed to enter the plan) there is no distributable event so I think all employees who are active have to leave their funds in the plan unless it allows for in-service distributions which is kind of rare in an ESOP. I do think you need to think about if this is the type of event that requires you to vest everyone to 100%. If not, and you aren't allowing new people to enter the plan then you could have coverage testing issues as you would have to track people who count for the test and aren't allowed in the plan when you reallocate forfeitures. Making everyone 100% vested obviously means no forfeitures. It is these kinds of issues that I hope you are going to run this by an ERISA lawyer before you implement this idea.

The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year." I believe the end of the next payment interval is the the same year as the 4/1 payment. I just don't see that sentence as saying the 12/31 of the year following the 4/1 payment.

I believe it is 3 also.

I have not seen anyone get a D Letter for a plan freeze.

Most plan attorneys I know say the same thing. Just set up a new plan. You don't have to worry about hidden and unknown disqualifying defects.

I am not a huge expert on fiduciary issues but does a lack of knowledge beyond its assigned function matter? Back a few years ago there was a strong movement to make appraisers of ESOP stock fiduciaries. One of the strongest objections to this idea was once you make them fiduciaries you make them liable for acts they would not have no control or knowledge about. I got the impression that when it comes to ERISA plans one fiduciary is liable for the acts of all the other fiduciaries of the plan. I remember several lawyers giving the example the appraiser if they were the last deep pocket to go after could get entangled in disputes say over how distributions were handled, or the cash in the ESOP invested. These would be things a stock appraiser would have no control over or even knowledge about in an ESOP. This was enough of a threat that several appraisal firms made it clear if the new rules came into existence they thought they would have no choice but leave the ESOP market and focus solely on Estate tax appraisals and the buy/sell of privately held company market. They believed they could not be compensated enough to take on that kind of risk. I am willing to be told I misunderstood these conversations but I don't think I did.

Sounds like my bosses need to raise our fees. We never charge more then $100 to $150 it seems like to review a QDRO. We view it as a money loser in terms of time vs revenue. We will charge more if we go back and forth a few times with the attorney. We don't have a standard QDRO format so we get what we get from the attorney and we review it. It seems like most of the time if there is a flaw it is we can't compute the benefit the Alt Payee is supposed to get. Every now and then you find one with a flaw like no plan name or wrong plan name. But the biggest flaw is failing to describe how to split the benefit in a way that is actionable.

Actually he wouldn't escape taxation. He would get a 1099-R from the source IRA for the amount of the distribution and a 1099-R from the source qualified plan. He would only be able to show one rollover so one would not be taxed and one would not be taxed. What he might be trying to do is get in effect 120 days by then saying I put in money for the qualified plan distribution 60 days after that distribution. I have never looked up if that is possible or not but given the IRS' new found dislike of people using a series of IRA withdrawals in effect keep a series of tax free and interest free loans going I have my doubts. So as to the original question I am with Lou S. I think the answer is "no" it won't work maybe for just a little different reason as to why.

I have worked for TPAs that review QDROs and offer a recommendation to the the plan administrator if they think the QDRO should be accepted or not. Once again the recommendation was written carefully to be clear the TPA was not approving the QDRO merely giving an opinion to the plan administrator. I don't know if I have seen a QDRO processing service that only reviews QDROs. I am not sure how you would ever make enough money doing that. I know there are attorneys that specialize in drafting QDROs out there. So a divorce attorney that doesn't think they are equipped to handle the complexities of the QDRO portion of the divorce settlement can turn to the specialized law firms.

He thinks I'm making a big deal over a non-issue. To some degree my guess is he is correct. Not that I think the law is on his side-- it isn't in my opinion. But in order for this to blow up in his fact either the plan or he would have to be audited. In his case the year he got the money is probably the only time the transaction would get noted. That is a low risk. In case of the plan while any time while the loan is in existence the audit would detect the loan as long as the administrator pulled out the documents showing it was giving in good faith for a home purchase my guess the IRS agent isn't going to ask for the person to prove they bought the house. The more years after the loan was issued the more I think that is true. So that is a low risk. In short the odds of this guy getting caught in my opinion is very low. Do I ever recommend someone to play the audit lottery? No. But the reality is my guess if you had a 100 people do this 99 to 100 of them would never get in trouble. That could be seen as a big deal over a non-issue.

I agree if the plan sponsor really wants to cater to this wish I don't think there is anything stopping the plan from making such an amendment. I think it is a bad idea as a practical matter.

Yup you say the plan only allows annuities and lump sums. That is his two choices. He can't take a partial. I wouldn't recommend changing the plan to allow a partial either. Sounds like a lot of work an expense for the plan administrator and sponsor. I would urge this person to roll 100% of their money into an IRA. They will allow them to control the fate of their money. Partial withdrawals from IRAs are easy to do. I have even seen some IRA companies make it too easy to make partial withdrawals. I once saw an IRA company that gave you a debit card linked to your IRA. So every purchase was a taxable event! Not to mention the idea of every impulse purchase drains your retirement savings. But I am off topic now so I will stop.

Sorry but you need to make your question clearer. I don't understand it. Has the merger taken place already? If so, this person now is terminated and only wants to take some of his balance and leave some of the balance in the plan? If not, is it he only wants to send some of his money to the new plan when the merger happens? I just don't understand what you are saying is the fact pattern is here.