ESOP Guy

So is your question basically this: A = husband B = wife Both A and B work for Z Corp B is the Alt payee of A. Can you combine the amount from the QDRO with B's regular account? I am thinking that is the question. Am I correct?

I once has a client where the court agreed to a reduced sentence if the person repaid the employer and the only source of money was the ESOP. So the person agreed to a distribution made to the same bank as the employer and then transferred the money to the employer. Then they person got sentenced by the judge. So no they can not just take the account balance. However, if the sponsor's attorney talks to the prosecutor and judge maybe strong incentives can be created to make a deal that is legal.

I think if he has a balance when the resolution to terminate the plan is effective he is 100% vested. This person simply gets a windfall upon the resolution to terminate the plan. However, if the forms came back before that and he is paid before that he isn't 100% vested would be my thinking. The only thing that can make this person 100% vested is if someone can make the case he quit because of the partial termination.

I would ask nicely to speak to this auditor's supervisor. This person needs to be able to answer the question: "why do you believe this is backdated?" to someone like their boss before you agree to anything. I will admit I worked for the IRS in the '80s on the income tax side but we were told we had to agree to a meeting with a supervisor and the taxpayer if it was requested. Assuming that is true that strikes me as a good first step.

Now with more details I agree with masteff and retract the idea there has been an error. I would also say that the OP doesn't describe it correctly. The outstanding loan balance isn't larger then their account balance. For example in this case the husband's loan balance is: $33,000 which is made up of $13k in investments and $20k in loan. That seems to be part of the issue here. The loan is part of their account balance so their loan can't be larger then their account balance. At most it can be 100% of their account balance if they took 100% of their cash as an in-service. In this case the other participants aren't at risk of not being paid.

I haven't worked for the IRS since the '80s and it was on the income tax side. But we were told all the time you had to always agree to allow a meeting with the taxpayer, your supervisor and you if asked. I would start with a friendly request to have a meeting with the auditor and their supervisor to make sure everyone is on the same page in regards to the issues at hand. This will get you a fresh set of eyes and most supervisors have many years of experience in the field and were willing to reign in an auditor that was way off base.

It is legal and normal. And as people said if the market had gone down you would have still gotten the 12/31/2013 balance. The other thing to realize is that is how they treated everyone else. So in past years people got paid out their prior 12/31 balance and your balance got the income/loss on their funds from the 12/31 to payment date. My guess is in the long run it was a wash.

Another issue that comes to mind is this: Since these two took too much cash out of the plan does someone owe the remaining participants lost earnings because there is less cash in the plan that is invested? It would seem like the answer is "yes". You should compute the difference between what the investments made and the interest paid (assuming the interest goes into general earnings and not just back to the people paying it-- ie this is a balance forward plan that treats loans as a general investment). Given how the market has done in the past few years my guess is the investments made a better return then the loans did. I stand by my statement you have an administrative error hear that needs to be corrected. If anyone doubts me on that then ask yourself this questions: If the husband and wife don't pay back the loan how do the rest of the people get their full account balances? Based on the OP there isn't enough cash in the plan to pay everyone what is showing on their participant statements.

How do you take an in-service so your balance is less then the loan? That sounds like an administrative error that needs to be corrected-- ie the plan administrator over paid these people. I guess I am saying I agree with 2 cent.

Assuming he is the only participant and thus the only one who would get a distribution I believe he can take an in-kind distribution. They would have to get the FMV of the stock. They would have to pay taxes on the FMV of the stock. So he would need a source of cash to cover that. If there are employees and they have shares allocated to them that makes it more difficult as he can't just offer the one person the right to an in-kind distribution. Given the amount of dislike the IRS has of ROBS I would run any transaction you do past an ERISA attorney. Never done this in a ROBS situation but I have seen in-kind distributions from PS/401(k) plans.

I think it can be done-- put the asset in an IRA but I would want an attorney look at it because the cost of a PT is high. The other issue is if the farm is income producing has the plan been filing the Unrelated Business Income Tax (UBIT) return? I believe the IRA would have to also file a UBIT tax return. Since they are thinking they could have a farm without paying taxes on the farm income this UBIT will come as a real surprise.

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.