ESOP Guy

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.

I would disagree with the prorate idea. The whole pay check was paid after they entered so the deferral came after the person was in the plan.

Yeah austin is right it sounds like you were put into an IRA. I would look into it more. I would also be aware that those companies that set up IRAs for force outs can have high fees. The fees can be justifiable they are dealing with people who tend to be hard to contact and work with. However, if you want you money to grow it might be better some place else. Like all things follow through and reading everything you get is important.

And for some reason I think an ESOP could help here!

As a rule I have found where you can show the error looks like confusion and not something else and you are offering to give the rank and file money the IRS will approve just about any reasonable correction. It looks like you have a failure to follow the document so I think a VCP filing is the only way to know you correction is good and acceptable.

I am with My 2 Cents. Most plans will say you have to be employed on the entry date to enter the plan. It isn't a compensation question but an entry date question you need to be answering.

Tom I don't remember the issue of too high being the big deal back then but too low assumed rate of return. I remember my first job from college in 1986. I worked for the IRS. I got a small dr office Sch C to audit. The thing that stood out was the huge pension deduction he was taking. I knew nothing back then about qualified plans at all. So I asked some questions and the thing that stuck out to me was the actuary was assuming a 5% return. This was back when a passbook paid 5.25% and simple money markets were paying close to 8%. I was told by my boss I had to take my objections to the IRS group that handled retirement plans. I was told by them to forget it they just took the actuary's word for it when it came to the assumed rate of return. I went to work shortly after that with a TPA that did both DC and DB work. Every DB plan they had assumed a 5% rate of return. I seem to recall a few year later the IRS did in fact start to question the 5% ROR and the assumptions went up and the people's deductions started to go down.

You might want to see if the boss and financial adviser and you can have a talk and see what is their objections to a Safe Harbor plan. In these situations they don't want to vest people or think total cost will go up. However since a type of Safe Harbor plan is one that is a fully vested match and if most of the other employees don't contribute the total cost might not go up. It sounds like the current match formula is fair rich if you are getting the refunds you are talking about Maybe a 3 way conversation will help. Otherwise I am with lippy it just doesn't sound like enough of an issue to leave a well paying job over. One last thing does your company have a health insurance option with an HSA? If so, max out the HSA and pay the medical expenses currently out of pocket. The HSA in effect becomes a tax deferred savings method when you do that.

Sorry for your situation but I think you have done all you can do at this point if the DOL is looking into it. The reality is while you are correct not giving out statements and other information is a violation if the company has no money there really is no one to fine.I would follow up now and then wtih the DOL. I doubt they can tell you much but at least you keep this company in front of them. I am normally not a go to the DOL first recommender but it sounds like you tried to work with the company and they aren't willing to work back at all. At this point your only hope is if the DOL determines the person you call "owner" (not clear if the ESOP owned 100% of the company or just some) violated some fiduciary duty the DOL has been known to go to court and get such people to pay out of personal assets on behalf of the plan participants. But you know how slowly the courts move. As for the value drop it sounds like the stock price hit zero. I know it sounds odd for the appraiser to say there was value to no value like that but I see often. It takes a while for appraiser to really come to believe the company has little to no chance to recover and appraisals tend to be the present value of future earnings. As long as there was a belief there would be meaningful future earnings at some point the appraisal would show value. Then it became real clear there would no longer be meaningful future earnings. So the stock price fell to zero as it must be the current liabilities exceed the assets. You don't say what happened to the 401(k) assets in the ESOP. Hopefully they were invested in something other then company stock and you were able to get a distribution of those assets.

I doubt there is a regulation that says you have to have a separate forfeiture account. What you can quote to him are all the rules that require trustees to run the plan for the benefit of ALL the participants and what he is doing is giving himself all the earnings from the forfeitures. That isn't for the benefit of all the employees. I think he could get hit with violating his fiduciary duty to the other participants by doing what he is doing. I am assuming the forfeitures do get reallocated at some point although the way your phrase the sentence about and use the word "supposed" creates some doubt. If the forfeitures aren't being reallocated per the terms of the document then quote to him the rules about how failing to abide by the terms of the plan is a disqualifying defect.