ESOP Guy

Regarding #2 if there is a treaty the withholding rate can be less then 30%. In fact it can be less then 20% and I have found some banks reluctant to withhold less then 20% just because that is what they see most of the time. More of a practical issue then a legal issue.

I am not a huge IRA expert. But I do know you will not be taxed twice. Here is the link to an IRS pulication. (By the way while talking to the IRS is a hit and miss deal their publications often times answer most if not all questions and the answer is correct. So I am saying it is a great place to start instead of chat boards. This one is full of very knowledgable people but many are not.) http://www.irs.gov/publications/p590/ch01.html You will want to look under non-deductable contributions and taxable and non-taxable distributions. The short answer is for the non-deductable contribution you have a cost basis in the IRA you have to track. I bit of pain and more paperwork but you will not pay taxes twice if you do it right. I have no idea if you can undo the IRA or transfer it.

I really don't know how it works on on the personal tax side. I have never looked into it. The distribution side is a little more complex. Canada is a tax treaty country so you don't have to withold 30% if you get the right forms completed. Study the instructions for the W8-Ben and the Form 1042-S. If this person completes the W8-Ben you can end up withholding 15% (I think-- I would have to look up the rate). Although I have to admit US banks are not always willing to go below the 20%. The other wrinkle is they are being paid from a US trust so they get checks in US dollars. Canada that isn't too big of a problem. Most of those banks can handle a US to Canadian dollar transaction. You can also end up with other oddness. Canada has much more generious maternity leave laws. They can be read as meaning you have to give a contribution when your US plan wouldn't give one to a person on leave. So do you follow the law or the plan document? Like I said it can be done just a little more work.

I hope so as I have plans with Canadian employees in it. As far as I can tell they are employees and the document doesn't say to exclude them you have to include them.. You just need to watch the exclusions. Alot of plan have the default provision that say the plan doesn't cover non-resident aliens who have no US source income. But if your plan doesn't have that exclusion in it I think you have to cover them.

This isn't an easy question. It matters if the person is a US citizen or not. It matters if the country is a tax treaty country or not. You need to find a look up the instructions on when you need this person to file a Form W8-Ben. You also need to look into the instruction for a Form 1042S. These two tend to cover a non-US citizen. It has been a while since I processed a US citizen living outside the US. I do a number every year that are Non-US citizens outside the US.

To me the next question is: Is the trustee an inside or outside trustee? An outside trustee is often times a bank or some other organization that is hired to act as the plan's trustee. An inside trustee is an employee of the company who is also the trustee of the plan. An inside trustee can be a committee also. I ask because if there is an outside trustee most likely they have had a chance to review the compensation plan for the board and officers. That will make it much harder to win a claim. The trustee's job is to look out for the interests of the trust. As such the trust's assets would be worth less if they company is over paying its employees. So if an outside group has reviewed the compensation plan I would think it is harder to get someone to second guess the decisions. On the other hand one can see how there can be a conflict of interest if say the CEO is the trustee of the plan thus making him in charge of determining if he is being paid an excessive pay. I would add QDROphile is right prudent business judgement and what is "fair" are often times not the same thing. Even if the CEO is the trustee if he hired an outside compensation firm to review the compensation plan and it can be shown to be in line of what similar companies in the same industry and same size MY UNDERSTANDING (however limited) is a court is most likely going to give the benefit of the doubt to the compensation plan.

What Masteff us describing in #3 is a simple balance forward method of recordkeeping. You can even add small wrinkles and keep it rather simple. For example if you make regular deposits into the trust through the year which are just 401(k) money you can give the new money a 50% weight. That assumption was the norm in balance foreward recordkeeping in the '90s and currently for the few that remain balance forward. It just has to be reasonable. In short a simple recordkeeping system can be set up for one person on a spreadsheet.

I can't cite anything to say this is correct but the effect is the employer made a contribution. Allocate the amounts as ER contributions. Think of it this way. If they had done it right the money would have been paid from the trust and then a like amount would have been deposited into the trust. You would get to the same place as what you have currently. So allocate it as a match or PS contribution is my answer. Can I prove it fits the self-correction rules? No, I can't do that. But given the facts I think that is what one argues.

Sounds like a PT to me also.

Is there an ESOP involved or did you just pick that topic at random?

So PI and his wife go to get some marriage counseling. She said Pi was irrational and keeps going on forever. (author of joke unknown by me)

Before you get your payment you will get some distribution paper work. One of the items in that package has to be a tax notice. Most everyone uses the IRS approved language. It seems like it is 6 or 7 pages long. That tend to cause people to not read it fully and carefully. It actually does a really good job of explaining your options from a tax perspective. It gives you a good idea which options will cause you to pay taxes and which ones won't. For example if you take the full $40,000 as a cash distribution to yourself. You do have 60 days to put it in an IRA. Here is the difficulty. As GMK said the plan would have to withhold 20% so you will have only recieved a check for $32,000 (maybe less if state taxes are withheld). So you would have to find $8,000 within 60 days to roll all of it over into an IRA in addition to the $32,000 check you recieved. Little traps like that are explained in mostly plain English in that IRS notice. So what I am saying is take some time and read through that notice carefully. That is a large enough sum of money it might not hurt to find a good tax person to give you some solid advice. The few hudred spent up front might be worth it on the long run.

Those rules are under the anti-alienation rules-- assuming like QDROphile said you really mean that the participant's benefits are protected from creditors.

There are a lot of reasons but something is going to happen to the stock. If they aren't distributing to everyone that means someone is buying it. Not that is a bad thing per say. I mean somone coming in and buying the stock most often times mean they offered a really good price for it. I would add even though the stock is owned by the employees via the ESOP the board and the trustees have to do what is in the best interest of the stockholders as stockholders. It is hard to justify not selling the company for a good price because the employees fear what might happen after a sale. Most likely they will tell you what is going on in time. But the reasons are so many one can't really speculate as to the specific reasons.

I don't think the 16 years does it. He had a vested balance when he left company A. So IF he worked for company A again he would be vested when he is rehired. The better question i-- iss company B and company A the same company for purposes of this question. That I can't help you with-- sorry.

I am doing this from memory not recent research. I am a CPA and I once worked for a regional CPA firm that had a TPA business and a rather good size plan audit business. We NEVER did TPA services for a plan that was audited EXCEPT prepare the Form 5500 and 8955-SSA. This firm was sticklers about compliance but more then happy to earn more if it could. My understanding was it was an independence issue is why the two didn't overlap more. Not sure if it was AICPA ethics or DOL rules. But it shouldn't matter either one should stop a CPA firm as an AICPA ethics violation often times is by definition a violation of related state law. I don't know how they can both audit distributions which is part of every plan audit I have seen and help process them.

Most likely the answer is "no" there isn't a good way to get the withholdings back. You might try and saber rattle at the custodian as this doesn't appear to be a valid distribution as there was no distributable event. But my guess is they are going to say they were just following the Plan Administrator's direction. But if they are willing to just cancel the checks and put the whole amount back into the plan and get the taxes back from the IRS seems like the best way. I just don't think the custodian is going to play along. Next best advice would be to find the cash some place else and get an equal amount back into the plan. It isn't clear to me you could roll it to an IRA as this wasn't a valid distributions. They would get the money back in 2015 via a huge refund. Sorry, you have a mess.

I can't seem to find anything on this so maybe there is no limit. We are working on a correction to a plan that goes back to 2005. We are going to file for a VCP on the correction. The question came up about the 5500s. I was thinking you couldn't amend them after 3 years like many of tax returns but I can't find that in writing so I am thinking I am just plain wrong. So I guess the questions is can you amend 5500s that old or are those years closed?

Based on the new information I do NOT think this person should get a PS or match contribution. This person would enter the plan for purposes of the PS and match contribution on 1/1/2014. That is the 1st day of the 1st quarter they met all of the eligibility requirements. This person did not meet the requirement of being 21 and working 12 months during which they also worked 1,000 hours until 12/31/2013 so they enter on 1/1/2014. This ASSUMES that the plan changes from anniversary date to measure the 12 months and 1,000 hours to plan year after the 1st year this person employed. If it doesn't make that change then I don't think we still have enough information to know if the person gets a PS and match contribution.

Although your question is a bit vague. You tell us the eligibility conditions for deferrals and the entry date that appears for deferrals. You don't state any where if the PS and match have the same eligibility requirements or not. Assuming they are the same this person entered in 2010 and is just now meeting the allocation requirements. If the PS and match eligibility requirements are different then the 401(k) portion we need more facts.

I agree with austin they would get an allocation every year. To me the question is like he said "are they really terminated"?

You need to read your document more closely regarding retirement. I don't recall ever seeing a plan that says you get a contribution upon reaching Normal Retirement Date (NRD). It ussually says retire or maybe defines NRD as terminating after reaching Normal Retirement Age (NRA). In short I have never seen a plan give a contribution to someone every year after they reach NRD regardless of hours worked and they haven't terminated. What I have seen is this happen: Person works full-time and enters the plan. As they get older (often times when they are in their 60s) they move to part-time and work less then 1,000 hours. Some time after they have reached NRA (often times defined as 65) they quit and that year they worked less then 1,000 hours. During the years they worked less then 1,000 hours but didn't terminate they do NOT get a contribution. They have not retired per the plan's definition. In that last year they terminated they have retired and get a contribution in that year. Once again I suggest re-reading your plan definitions regarding NRD, NRA and contribution allocations. I have never seen mere age cause one to get contributions but one has to retire which is linked to terminating employment. To some degee just the dictionary definition of the word "retire" has in it the idea of leaving employment. By the way there is ussually a way to make the disability plan provision work. Once again it often times describes how the plan administrator is to determine who is and is not disabled. I know I am not giving a direct answer to your question but I really do think you are trying to solve a problem you don't have.

I think you can do it. You can reclassify for a 415 failure. Edit: http://www.mhco.com/BreakingNews/CatchFAQ_122013.html

Ok I admit not a DB guy so here is my question: Are the errors described here subject to self-correction? I mean not following PPA sounds like the best route is to file a VCP to fix. If so, shouldn't you be going to the IRS to "confess" so what difference does it make?

I think I agree with recline46 you don't have a plan. I must admit I didn't fully understand your answer to the ownership question but the one thing that sounds clear is this: If it is true that none of the shareholders of your company own any of the shares of the company you bought the assets and that company is still the sole sponsor of the 401(k) plan then none of your employees can participate in the 401(k) plan. It would be like an Exxon employee trying to participate in the IBM 401(k) plan. I am not trying to spend your money but you might want to get some legal advice from an attorney that specializes in ERISA issues or might want to find a local TPA firm to help you. For one thing if people want to make an 8% match then someone ought to be finding a solution to make that happen instead of some payroll company telling their client how they ought to do things. After all if they are willing to give people 100% vesting like a Safe Harbor plan demands come up with a way to get most if not everyone the 8% match. There are some pretty clever 401(k) people out there (including people on this board and by the way I am not one of them) who should be able to get you a plan that meets your goals and not your service provider's goals. It also sounds like you could use some help from someone who could spend some time with you making sure they have the correct facts and getting the plan set up correctly. Off soap box now regarding a service provider telling a client how it is going to be done.