ESOP Guy

Once again I think the simplest read is this: If the corporation's marginal rate is 25% at the federal level and 3% is the marginal rate at the state level it wants 28%. Asking the software provider is a good idea. However, most projections try to estimate the tax saving of the deductions which would happen at the marginal rate.

Increase your fees!!!!!

Wouldn't combined be the Federal plus state marginal rate for the employer? Just taking an educated guess but that is my first reaction when I read those words.

I agree with BG5150 the 401(k) plan should have paid an RMD for 2014 before it paid a distribution to this person.

The case for dFVCP is what Belgarath said. You know the penalty and it is limited. There is a lot to be said for that and I use DFVCP myself at times. My experience is if you wait until you get a penalty notice and the client has a solid history or filing on time in the past the chances of a full waiver are good. But you are risking the need for IRS mercy. This part of the IRS is less revenue driven then other parts. So the choice is a known penalty vs a chance to have a zero penalty.

Go Cards!

Maybe you can convince the client that you need to start completing the change of auditor section of the Sch C for 2014.

I think I once even saw an IRA company that had a debit card linked to the IRA. So every purchase can be a taxable event also!

I would start by talking to the plan administrators. They know the plan and its rules. They should be able to get you the answers and guide you through the process. As a general rules spouses have rights (that is how your husband got the QDRO benefit in the first place) but like all general rules there can be exceptions. So start with the plan administrator. Sorry for your loss.

the other thing is if you don't have a 415 problem or a destructibility problem what difference does it make if it is a contribution or earnings. I have a hard time believing this will be big enough to throw off a discrimination test either. To the point I wouldn't even bother to do the test.

I don't do this very often but auditors can put a small reconciling sch in their report to explain differences between the 5500 and their audit report. Most people don't like that idea as they think you should resolve the difference. This might be one of those times the 5500 and the auditor report need to be different. Normally I give the auditor what they want on the 5500 as I figure it isn't that important. But as you say I wouldn't want the tests and 5500 be different. Maybe it is time to agree to disagree.

I tend to go with other income just so my distributions = the 1099-Rs and so forth. I have no idea if anyone checks those numbers against each other but that is what I do and why.

I believe you are reading those regs incorrectly. That whole section starts with this title: (3) Compensation paid after severance from employment— So those rules only apply to compensation after you have left employment. Those words you highlight I believe are just reiterating that fact. If you want to know what the rules are for before employment has ended you have to go to an earlier section which reads: (b) Items includible as compensation. For purposes of applying the limitations of section 415, except as otherwise provided in this section, the term compensation means remuneration for services of the following types— (1) The employee's wages, salaries, fees for professional services, and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the employer maintaining the plan, to the extent that the amounts are includible in gross income (or to the extent amounts would have been received and includible in gross income but for an election under section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k), or 457(b)). These amounts include, but are not limited to, commissions paid to salespersons, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan as described in § 1.62-2©. Remember this is just 415 comp. You can use a different definition of compensation for allocations and testing if the plan allows and you pass the needed tests. This is what Kevin C was getting at. If your plan uses 415 comp for allocation comp you would exclude this severance pay. To the original question I would read the document carefully on how it defines allocation compensation. Does it mention for services rendered or not? Does it reference 415 comp or not. If not, you might have to allocate on this severance pay but can't use it for tests that require 415 compensation or you might have to test your allocation comp as it isn't safe harbor. If it is the last one I would think someone made a drafting error as you shouldn't build such traps in to your document. It has been a long time since I have had this situation but that is how I seem to recall it. Your 415 comp might exclude this pay but in effect other types of compensation in the plan might include it. Once again I think part of the disconnect in this conversation is some people are assuming allocation comp and 415 comp are the same. I don't believe that has to be true and in fact I see no reason to believe that allocation comp can't include something not in 415 comp. It just might lead you to odd testing and allocation results but possible. But I am doing this from memory and I am willing to be told I am flat out wrong on this one.

Not my areas of expertise but isn't this a simple as they client would have to show that this benefit/rights/feature (BRF) is non-discriminatory. It seems to me if an IRS agent showed and saw how this plan is working he would ask for a BRF test then cross his arms and wait. Failing to produce the test would result in him saying this plan is operating in a discriminatory manner. So the short of it is I don't think you will find rules about brokerage accounts that say if you can or can't do this because this is straight forward BRF question.

I know this might not help you sleep but.... I made a mistake last year and just plain forgot to file the 8955-SSA by July 31 but did file the 5500 by July 31. The client got a notice saying they filed late and owed a penalty. I wrote a letter explaining the error and why it happened. The IRS waived the penalty. You have a strong set of facts. I would file the 8955-SSA and if you get a penalty notice ask for mercy. My guess is you will get it.

This one of those bizarre rules that gets extended retro back to 1/1 every late Dec. Thus, either leaving you no time to do it or doing and risk they don't get around to extending the law for another year.

Not selling also save brokerage fees. Not as meaningful in the days of $10 trades vs when it was 1% or 2% of the purchase price. But the advantages seem small to me but the idea also seems harmless enough also.

I think austin wrote something but it was too small to read!

We have been doing more digging. The ERISA Outline book in section 13A seems to suggest you could interpret the DOL regulations as to mean people who meet the eligibility after 1/1 but are given a retroactive DOE of 1/1 don't count for the 1/1 count purposes. Does anyone have any experience with this idea? Anyone have an opinion on ignoring someone who met the eligibility say on 8/14 and was given a retroactive DOE to 1/1 from the beg of year count?

Deemed has been added starting in 2014. For many reasons we can't go back to the document writer but I agree not all documents are created equal. There are other flaws in this document related to this whole count thing. For example everyone enters 1/1 so every new entrant is in your count the year they enter the plan. You could have gotten what they wanted by just using full year comp and a 1/1 and 7/1 entry date. Having a 1/1 and 7/1 entry date would have done it as they are only over 120 by a few people. Although in the end they are a growing firm so they would have hit the audit mark at some point. The prior TPA doesn't appear to have done a good job of warning them about getting close. So I agree not all plan documents are created equal.

Strangly the answer I am most often getting is they would be listed under Activies as they don't meet any of the other groups: Here are the instructions for 2013 for Actives: 1. Active participants (i.e., any individuals who are currently in employment covered by the plan and who are earning or retaining credited service under the plan). This includes any individuals who are eligible to elect to have the employer make payments under a Code section 401(k) qualified cash or deferred arrangement. Active participants also include any nonvested individuals who are earning or retaining credited service under the plan. This does not include (a) nonvested former employees who have incurred the break in service period specified in the plan or (b) former employees who have received a “cash-out” distribution or deemed distribution of their entire nonforfeitable accrued benefit. You will note it also includes any nonvested individuals who are retaining credited service. These people don't seem to meet any of the exception in the following (a) and (b).

They have solar powered calendars now to solve that problem.

We have a plan that doesn't forfeit until you have been fully paid or have 5 BIS. It has no deemed distribution language. There are a group of people who have a DOT are 0% vested and have an ending balance. Are these people in the beg count? It is the difference between needing an audit and not needing an audit.

While I understand QDRO's concerns would their be less if the questions were asked this way? Can a participant ask for an in-service distribution that includes nothing but the loan in kind? My guess less difficult would be a 100% in-service request since the person isn't selecting the asset be distributed. If the in-service distribution is 100% of the account balance then the loan is merely distributed as part of the payment.

Yes, they have to receive the cash contribution. In part because of the reasons you describe you will find many ESOP exclude the 1042 people by say job title. Say the former owner stays on as CEO for example. It just eliminates the problems you are talking about. As a side bonus if such a person is a HCE, which often times they are, since being excluded like that isn't a statutory exclusion it tends to help your coverage test if you are having problems with that. As you now have a HCE who is not benefiting so less then 100% of the HCEs are benefiting. So you can now have less then 70% of the NHCEs benefiting. I have had that fact help me out more then once with ESOPs. In fact I have an ESOP that because of high turnover only 30% of the NHCEs benefit as it has last day language. But because only 2 or the 10 HCEs benefit, the rest of them are 1042 people or their family, it passes coverage. So unless this person just really wants the cash think about excluding the 1042 people form the allocations by amending the plan. Sorry if that is more answer then you wanted.