ESOP Guy

I have worked with PBI. Good costs and tend to find most people. The thing I like the most about them is when they are done you can get a close out letter from them if you want one. This letter describes the process used for the search. It give you something in writing to support the claim you did your due diligence for a search. http://web.pbinfo.com/

I don't even see the benefit of not using the interim valuation other then someone knows the plan has had income and doesn't want to share. The work is done. Once you know the knew value for one person you know it for everyone.

The odd part of all this is while VERY rare a 401(k) could offer an annuity as an optional form of benefits. So this idea the vendor can only handle 401(k) assets makes very little sense. Also, is there anything stopping the plan from taking the MP money from the vendor if someone asks for an annuity and buying an annuity from an insurance company and using that to pay the annuity? It seems like there are options here. Including the finding a new vendor as pointed out by others.

The well-written ones, anyway. What is the answer if the amendment just changes the schedule as of the amendment's effective date and says nothing about former employees or hours on or after or anything? I for one think they are stuck and have to give the wind fall to the terminated person if they just talk about the effective date. If someone is mad look to the person who drafted the amendment. Being careful and drafting it to only include people who worked 1 hour after a given date is vesting amendment writing 101 and I find the sloppy writers learns the hard way only after making the sloppy mistake once.

it really depends on how the amendment was written. A carefully written amendment will say who the change effects. You would like to see some thing like this in the wording, "this vesting schedule applies to anyone who worked 1 hour after xx/xx/xxxx". A poorly written one will just say all participants as of xx/xx/xxxx use the new vesting schedule. If it reads like that the terminated person has a much stronger case. A terminated person with a balance is still a participant and if that was true as of xx/xx/xxxx a simple and literal reading says they are 100% vested now. So read the amendment carefully.

The funds ought to be allocated to the people who suffered the loss. Obviously if those records don't exist that is a problem. (What can't help but wonder why the question is coming up now if the check was received in 2008 not that it changes anything. What is done is done.) Does anyone have copies of the 1099-R for the people paid? That would allow you to establish everyone's balance at the close of the plan. Not a perfect proxy to allocate the $20,000 but better then nothing. I guess have all the plan's fees been paid? (Raise you fees to $20,000 ) If not you could pay fees with it. It sounds like it is a trust asset and it should pay trust expenses or be paid to the participants. Just spit balling ideas here.

I am not a legal expert but here is my take on it On day 1 participant dies so you need to look who is the participant's beneficiary. On day 2 the beneficiary dies but at this point this person is the new participant so you need to look who is this beneficiary Even if the record keeping system hasn't kept up with events it seem to me the Spouse took legal ownership of the benefits for one day. Then the next day they passed and now you have to see who gets the assets from that participant. Maybe there is a lawyer out there that will tell me there is a solid legal reason to see it any other way. However, given the risk I would recommend you don't take a position. To me this is the type of risk a lawyer is paid to take. They make a whole lot more per hour then the typical TPA or internal benefits employee. Part of the reason they are paid more is to express legal opinions for their client that they may have to defend. In short get a lawyer that knows plan law and estate law to opine on this one. That is why lawyers exist.

I think that is the cleaner way to do it.

If the plan reallocates forf I would think about having the employer making plan whole so no one can say the other people in the plan were harmed.

There is a 2009 rev ruling on this topic http://www.irs.gov/pub/irs-drop/rr-09-31.pdf

I am with David, without a QDRO what is the distributable event? This person isn't terminated if they were never an employee. How do you separate the accounts without a QDRO? You just violated the husband's anti-alienation rights-- even if he isn't objecting.

I got lost as to what you mean among all the words you used. That can happen when you work with ESOPs. From today's news, you can't presume too much, I guess. Or maybe we should say, "from today's news, you can't presume too moench, I guess".

I got lost as to what you mean among all the words you used.

My understanding is that the amount in box 12 of the W-2 is merely information. I would have to go back and re-read the code sections about W-2 compensation but I believe it relates to Box 1 and then you add to that if deferrals are added back. http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage

I have seen SPDs that merely refer to the loan policy.

I tell clients all the time in most documents if the person meets the age/service requirements they have retired under the plan. It isn't about giving the person a gold watch or calling it retirment or in this case what the person does after they leave the employere. In fact if you read Riby's definiton which is common if you fired the person and they were of the right age and service they just retired.

As a rule if the document is silent then all plans have a provision in them that say the Administrator has the authority to reasonably interpret the plan provisions as long as doing so is non-discriminatory and reasonable. I think either date can have a case is made meets those criteria. But to me LOA doesn't mean terminated so the more natural or dictionary meaning of the word employed says a person on a LOA is employed. As such that points towards the 7/1 date,.

Yes it is deductible. As far as I can tell the determination if a contribution is deductible is one set of rules. And none of those rules relate to how the money is used in an ESOP-- ie to fund distributions or make a loan payment. The rules for how the loan payment works is totally independent from the deductions rules and via versa.

To be more clear as I did in the edits above also: (My first version was vague I guess that is the price you pay by writing late at night) The FMV test is this: The shares release because of the loan payment from JUST the allocated share's dividend must be worth more then that dividend. So if the allocated dividend's are $6,000 then compared to the shares release by that $6,000 payment must be worth at least $6,000.

The transaction related to the allocated shares is a dividend payment to the plan. The dividends then pay the loan and release shares. Since it is a dividend those amounts and shares don't count as annual additions like any other dividend for example. On the FMV test I am unsure about your description. The value of the shares released by JUST the dividend from the allocated share must be worth more then the cash value of the dividend. In your example the shares from JUST the dividend from the allocated shares released have to be worth >$6,000 Also just to be clear it helps to think of your example as having 3 parts: 1) Contribution that is used to pay the loan and release shares. 2) Dividends on unallocated shares that are used to release shares (The dollars in both #1 and #2 are allocated on compensation which will result in the shares allocated on comp) 3) Dividends on allocated share that are used to release shares (The dollars are allocated pro rata on share balances) The amounts in #2 and #3 are dividends and are treated as such for testing. So both #2 and #3 are not annual additions for example. The amounts don't count for deduction limit. Hope that helps. Edit to fix typos and make it a little more clear

My first reaction is the 7/1 date but I don't think I could point to anything in black and white. Being on leave isn't a form of termination so I think the person is still employed. Just my opinion like I said.

Taking a distribution that is taxable at your age is a very expensive thing to do. Let me ask you this question. How much are you putting into the 401(k) plan as a percentage? At what level does your employer match? The point I am getting at is it worth it to reduce the amount you are putting into the 401(k) down to the level where you employer stops matching and use that saving to make an extra payment on the loan? For example: Your employer matches 50% of the first 6% of pay. You are currently putting 8% of pay. Reduce your deferral rate to 6% to get the match. And take the 2% of pay to make extra payments on the student loan. This allows you to get the full match which is valuable. It allows you to keep what is in the 401(k) fully invested. The only taxes you pay are the regular income taxes on the 2% you are no longer putting in the 401(k) but at least you aren't paying any excise tax on early withdrawal. You are not at risk if you lose your job of having a 401(k) loan becoming a taxable distributions. Maybe the fact set doesn't fit you but it might be worth to get some advice from a paid professional after they have looked at all of your information and have a better idea of all the facts.

2 in particular if you are close to the audit/ no audit break point. Method 2 is clearly the correct method if you read the instructions. I worked for a place that had almost all large plans and for some we were a little lazy and just brought forward the prior year's numbers but it just didn't matter on the audit/no audit question.

What is a "leave cash outs for unused vacation"? Is this where a person gets cash for unused vacation days when they terminate or do they get cash at the end of the year if they have unused vacation days or something else? If it is one of the two above I have a hard time seeing how it is a bonus which tends to be paid for above average performance either at the individual level or the company level.

I agree with Kevin C. I am thinking having 2 accounts makes the most sense. I bit of a pain but I think in the long run the best answer.