ESOP Guy

Yup even thought I am happy on my current job I scan the job posting on the daily e-mail from this site just about every day.

Does the plan document really require cash out? I have seen plenty that give the administrator the option but require seems rarer.

I can't help you. ESOPs in the retirement world are kind of a niche-- that I am good at. So if you don't get much useful response you might want to resubmit your questions under a different topic title. Try misc benefits as the general topic. Then in your subject line make it clear that you are talking about Stock Options and non-qualified stock option plans. I believe there are experts that read this board regularly on those topics. They just might not be reading this thread thinking they don't know anything about ESOPs. Like I said on this board reference to an ESOP is always going to be assumed you are talking about the qualified retirement plan and not your subject. Just so you know the guy that runs this board will not take offense if you resubmit your question under a more relevant topic heading.

Let's get something clear here. It sounds like fancynacy is NOT talking about an ESOP--- am I correct?. ESOP is an acronym stands for an Employee Stock OWNERSHIP Plan-- a type of qualified retirement plan. I think you are talking about a type of stock options plan which tend to be non-qualified plans. .

By out of money I mean would they would NOT collect anything from the SARs on the date you are testing. So if the stock price needs to be $65/shr for the people to collect on the SAR and the stock is currently $60/shr they have no effect on the 409(p) test. Once the stock price reaches a price the SARs have value they will have to be factored in your 409(p) test.

I don't think I have ever seen a PS reversion to the employer. More likely was the balance was treated as a forfeiture. You need to get a copy of the plan document from the time of the plan termination. it should describe what should have happened to the balance and what happens when the person is found. Most LIKELY (but can't be sure) is the balance was forfeited at the time. Most LIKELY the balance needs to be restored and paid the person. It seems like earnings is not required in the plan documents I have. If the plan doesn't exist so there aren't current forfeitures to make the restoration from the plan sponsor is going to be on the hook for the account balance due. But the plan document if it can be found is what is going to cover this. They all have a section on lost participants. I would make sure the balance was not sent to the state or something like that. That isn't what the documents tend to say but banks do it anyway. Also, make sure the person wasn't paid already and someone just didn't file a D on the SSA. D's weren't mandatory for many years so people got lazy and didn't file them. Now that laziness is coming back to bite people.

So are you saying that currently the SARs are out of the money? If so, they would have no effect on your 409(p) test.

I have never seen a plan document that allows someone to take a distribution of all their balance accept the loan balance. Or put another way I have seen plan documents that say you take 100% of your account balance or you don't ask for a distribution. I have never seen one that say I can ask for only the cash balance of my account. I don't think you have a document that allows what your are proposing but I guess you ought to check it to see if I am wrong.

I would add part of the reason a judge will not be inclined to reopen the QDRO is because as stated before there is an infinite ways to divide the benefits. I once knew a couple where the wife needed the house as the kids were still living there. The husband made a much higher income then the spouse so he was comfortable with the idea he could afford to buy a new place. So he agreed to give the wife the house and the QDRO gave him 100% of the retirement benefits. Note the QDRO didn't mention the part about the house that was in the divorce decree. So from the judge's perspective even if your former wife got more then 50% of the benefits he doesn't know if there was some other part of the deal that made up for it. So the judge isn't going to want to possibly reopen the whole divorce settlement.

Would or Could complete the share release for 12/31/13? And back to the OP question regarding "immediately" purchasing shares: how far into 2013 could you purchase shares and allocate them as of 12/31/2012? What share price would you use in that scenario? The price you use to purchase the shares have to be the FMV of the shares on the date of sale/purchase. An ESOP always has to show they paid no more then FMV. There is a presumption the seller didn't allow themselves to get paid too little.

The only possible issue would be if you have a C corp ESOP and you are trying to deduct the interest on the loan. You can't deduct the interest in a year the loan didn't exist. Otherwise what you describe is rather common.

isn't part of the difference between a PEO and a MEP is that everyone works for the PEO and in a MEP everyone works for the companies? Or put another way there is only one employer with employees in a PEO but there are as many employers with employees in a MEP as there are employers.

I just had this come up this week. I find it a bit funny you worry about withholding. In the end withholding is just that. To me the more interesting question is the one Tom points to. What is the taxable amount? To use his example is the taxable 1050 or 1000? I lean towards 1000 but the way the bank I was working with said it was 1050. They were consistent they withheld 210. But like I said why worry about withholding? It is what is taxable that determines what the person owes when the tax return is filed. Edit to make it a little more readable.

For what it is worth I find a lot of course work in the retirement field lacking in term of many common day to day problems. I remember back in the early '90s when I was first learning 401(k) plans. You learned about all those refunds you might have to make with gains. For the longest of time it never struck anyone to make it clear what you did if the plan had a loss. Maybe it was obvious to everyone less but it wasn't to me. It seems like now you see it written more clearly. That is just one of the many examples I remember. The only places you can go and get a good education about ESOPs are ESOP Association and NCEO conferences in my opinion. There you will hear speaker that do ESOPs for a living.

Isn't that the hard way? You can fund a deductible contribution as late as the due date of the tax return you are taking the deduction on. So you often times can have up to 9 months to fund the contribution. So why not deduct the contribution on the 6/30/2014 tax return, extend it? You would have well after 12/31/2014 to actually deposit the contribution. I am not sure if there is anything you need to worry about regarding the allocation because of the different year ends. I can't remember working on any such plans. I would double check that you don't have to allocate it to people who were employed on the sponsors last day but not the plan's last day. I don' think you would as the plan document wouldn't read that way but worth a check.

If all you are asking is can you use the money put into the plan as a contribution for the PYE 2013 to make a payment on the loan in 2014-- yes you can. The FMV is irrelevant. You compute the release per the document which is the ratio of loan payments over total loan payments. As Shot says you have to look to the paperwork to know if you use Prin+int or just Princ on that calc. FMV just doesn't change how many shares are release. As Shot says you would really compute the release at an allocation date which in an ESOP would normally be once per year. I suppose you can have quarterly allocation (for example) but that would be very rare. I am not trying to be mean here but if you are a TPA that doesn't normally work on ESOPs you might want to work with one that does. If you are a company that is trying to work your own ESOP you might want to get help from a TPA that does ESOPs for a large part of their business. The firm I work for makes good money every year fixing ESOPs that good 401(k) TPA providers or company's thinking how hard can this be and they end up in VCP.

Once again I am confused by your comment. To quote the referenced rule: In the case of a transaction between a plan and a disqualified person, value must be determined as of the date of the transaction. If the ESOP is buying shares from a disqualified person the value "must be determined as of the date of the transaction". The fact set you are describing isn't doing that but using an appraisal that is months old. The only way I seem that I could be wrong is if the seller isn't a disqualified person for some reason. I have been assuming the seller is the plan sponsor based on the question. Let me know if that assumption is wrong. Strangely you can use the prior annual valuation when you are doing the standard put option transaction. That transaction goes like this: Step 1: Distribute the shares to the former employee Step 2: Have sponsor buy shares from former employee per the Put Option. You will note there are no disqualified persons as the plan isn't involved. The whole buy/sell is between the company and one of its shareholders. (Even if they are only a shareholder for 1 second.) So if the two agree to the transaction at the prior annual stock price no problem.

Assuming the IRA the distribution went into had no other funds my understanding is there wouldn't be an RMD in 2014. My understanding is that any RMD paid in 2014 from the IRA would be based on the balance in the IRA at 12/31/2013 and that amount was zero.

It isn't' clear it would be wise to purchase a bunch of stock right before a large leveraged ESOP purchase either. Typically the ESOP loan is a reduction of the company's value so the stock price tend to go down by a large amount when the leverage purchase happens. So the plan could be buying shares it knows will go down in value.

How many months apart are the two events? If it isn't basically the same date I think you have to get a new appraisal. Even if it is 5 or 6 months apart I think you have a problem of knowing you are paying FMV. This comes up in distribution processing. It takes a company until Aug to get the certs out. Now the sponsor want to make payments to people and do it by selling the shares from the trust to the sponsor. Every attorney I know will tell you that you can't use the 12/31 value to know there isn't a PT. You would have to get a new appraisal. I see no reason why this is different. (Note the example above is different then if the shares stay in the trust. At which time you can use the prior 12/31 price. I know odd but that is how the PT rules work. The sponsor is a part in interest so you have to pay FMV. The participant I believe is a class exemption to the PT rules.)

At risk of stating the obvious but if you are going outside the ESOP you will need an apprsial for that transaction which is the most likely reason people don't do it very often.

I am not sure I fully understand the question. Is it this? There is allocated cash in the plan. Can they use that cash to purchase share within the plan? Example: If someone is terminated and needs a distribution can they take the share from the terminated person and give them the FMV cash for those shares-- then make the payment? Yes

I might be biased as all I work with any more are ESOPs but owner might want to look into just making that portion of the plan an ESOP. They seem to have better defined rules regarding how to handle all of this. If not interested in that I think I agree with masteff-- some kind of synthetic equity like SARs, phantom stock linked to company performs might be better.

I think one could raise fiduciary issues of having an investment that can't be sold until a buyer shows up. In ESOPs the sponsor has to be the market maker of last resort. I am not sure that rule applies to 401(k) plans.

It has been a few years but that sounds right. If this bothers you we used to run plenty of balance forward plans with common investments except for the loan. You could see if the plan sponsor is interest in that change with new loans. In that case the person get all their loan interest and you treat loan payments the same as deferrals for earnings allocations. It seemed like we gave the deferrals a 50% weight when computing the basis of the earnings allocation and we gave the loan repayments the same 50% weight.