ESOP Guy

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.

Why can't you allow the employees into the plan? I mean they will accrue a benefit of 0% of compensation every year. I tend to be more troubled by the idea of a 0% MP plan. I know several ERISA attorneys who took the position you can't do that and so when the companies I knew wanted to keep the plan for various reasons but stop accruing meaningful benefits the plan was amended so the benefit rate was 0.5% of pay.

I am with QDRO I would start asking questions. Since it happened in Oct that might be an issue but I have never seen a situation where a loan default results in a check being issued. Something odd happened here is my opinion.

In fact assuming there was no balance in the IRA before the rollover there is no way to compute the RMD. Simple example: Person turns 70.5 in 2014. They take a distribution from a 401(k). The RMD is paid and on 7/1/2014 they put money into the IRA. Any 2014 RMD would be computed on the 12/31/2013. The balance as of 12/31/2013 would have been zero. Even if the IRA has a balance as of 12/31/2013 since the distribution wasn't added until 2014 the new money wouldn't be included in the computation. In that case there would be an RMD but like I said it would be based on the money in the IRA as of 12/31/2013.

I vote yes also. I also think this is one of those cases where the plan administrator is able to make a reasonable interpretation of the plan document in a non-discriminatory way.

I have had to hand IRS auditors copies from their own publications before. Odd thing is I used to work for the IRS and they actually do train their people on the law. So I have always been a bit baffled by having to do that. I guess there are that many rules that one can lose track of them,.

QDRO I am unsure what you think about this topic.

Bird the IRS is looking at the 8955-SSA a little more when the audit. I had an ESOP audited recently. They asked why they had people listed on the form 5500 as terminated with vested benefits and no form 8955-SSA filed. So they are thinking about it a little.

My experience is like MoJo's. I have had DOL auditors take the position that if you can get a tax withholding deposited in x number of days you can get the 401(k) deposited in x number of days. In one case for a large employer I believe they were required to transmit the tax withholding in 24 hours. The DOL auditor said 24 hours was the deadline for the 401(k) funds. I would add it is important to remember what is key here is DEPOSITED not allocated. While it might be a pain and require some fees you can comply with these rules by opening a checking account in the trust's name at the same bank as the corporate account and do a simple transfer from one account to another. If this company is large enough they might be able to get the bank to waive any fees on the extra account to keep an important client happy. You then transmit the 401(k) deferrals to where they need to go a few days later. But the legal requirement would be met the moment the cash hit the trust's bank account even if the money isn't allocated and it is a non-interest bearing account (but can only stay that way for a very short time but that is a fiduciary issue-- different rules) Short of it is you don't say how large is large (101 employees or 10,000?) but I doubt 7 will work and I would be careful going past the tax deposit deadline.

I will also tell you that the IRS is now sending out fine notices for late 8955-SSAs. So to file the 2013 late will cost. So while maybe not the 100% right answer i would think about taking the audit lottery and put it on the 2014 8955-SSA.

Does anyone really believe the government won't bailout the PBGC when the time comes? Back in the '80s everyone one of my finance prof said the same thing. Legally Freddie and Fanny were not guarantee by the government but their bonds sell like their is an implied government guarantee. The market was right and the lawyers who said there was no legal obligation were wrong. The government couldn't afford to allow the repercussions of Freddie and Fanny going under. The market saw the political reality. The simple fact is if the PBGC defaults you are going to have the news showing you pictures of retirees many of whom took pension cuts because the PBGC payment cap now being told they might get little or nothing more from the PBGC and congress will fold and vote the funds to pay those people. So if you were to ask me about the pension I have earned at a former employers: Which would you prefer PBGC protection or the idea Pru won't go insolvent I would pick PBGC every time. Don't get me wrong. Nothing I am saying here makes me believe these people have a case for court or if my former employer de-risked I would be up in arms over getting a Pru annuity. I think the odds of Pru going insolvent is very, very low. I just so happen to think that the PBGC in fact has a very rich sugar daddy that won't ever allow it to go insolvent.

Just to play devils advocate here: What if one month he had to pay a large medical bill because the HCE's spouse just had expensive cancer treatment and the next month the kid went off to college. If the savings had been drained for the medical expenses to the point they needed the hardship it seems reasonable there is no money for the kid's tuition. In short I think you need more facts to even start to go down that road. I can think of a number of valid reasons for a pattern you described. So to me the answer is "no it doesn't seem like abuse on the surface". And as noted above the idea of abusive hardships seems undefined.

I suppose that is one way to get your terminated people out of the plan in the long run. You have to take a lump sum when you turn 70.5. Seems extreme to me but that is just one guys take on the issue.

Are you asking if the only way to meet the RMD requirements is to pay out the whole balance because the plan only allows for a lump sum? If so, I doubt it. (But can't be 100% sure without looking at the document) Re-read the RMD section it almost certainly says you must pay out at least the RMD amount or says you must pay out the RMD amount. I have always read this to mean you can pay out just the RMD amount even if for a regular termination payment (after the person completes the forms) you are only allowed to pay a lump sum. Or put another way one section tells you what to if the person is terminated and over 70.5 and doesn't ask for a distribution you then pay the RMD amount and another section of the plan document tells you that the plan must pay a lump sum if they request a distribution after termination. I don't think I have ever seen a document that requires you to pay a person 100% of their balance in order to satisfy the RMD rules. But if the document really says you have to pay 100% of the person's balance to meet the RMD rules then you do have to follow the document. I am just thinking you might not be reading the document right. Once again if you think you are you might want to go to the people who wrote the document to make sure you are reading it right. If you are not asking the question I opened with then I am not sure what your question means.

I think you need to look harder to find the definition of the RBD. I don't think I have ever seen a document that doesn't have that defined. That is because there is a choice so the choice has to be recorded. If you have to go back to whoever provided the document and get them to interpret their document. But I just find it nearly impossible to accept the idea that the answer isn't in the document.