ESOP Guy

They bought the stock of the sponsor. That means the sponsors still exists. The sponsor has to deal with their plan. If the plan is disqualified the sponsor has a problem. I admit I am not a lawyer but that is my understanding. It is that simple. The sponsor still exists but has new shareholders. Since plan actions are in the end the sponsors responsibility you know who has to do the work and pay for it. (Except for those costs that the plan can pay.)

You give that advice a lot. Should your client's be worried? Nah. The money is coming from the forfeiture account! Well, as long as it isn't real money just forfeiture money then it is ok.

You give that advice a lot. Should your client's be worried?

To me you have two questions here: 1) Can a QDRO give nothing to the Alt Payee 2) the question about the changing the beneficiary. I am going to stick to just #1 as I am confident I know the answer. Yes, a QDRO can give zero benefits to an Alt Payee. I have seen it happen. You might ask why it would happen. It is simple. in the case I saw the wife wanted the house as the kids were going to live with her and her needs were more in the her and now. The husband was willing to give her the house free and clear in exchange for the retirement benefits. For what it is worth it seems Mojo is right if the idea is merely to change beneficiaries why not just have the wife sign a beneficiary change election form?

I have done what Flyboyjohn suggested exactly once and it worked. The IRS did not apply any penalties. I get the impression that part of the IRS is more interested in getting people to file then raising revenue. However, since I have only done it once I don't know if it is a pattern.

i haven't put tons of thought in it but to use a fee allocation method that would shift a fee from the high balances to the low balances seems unwise. That shift seems is the net effect of what you are proposing. It would seem even less wise if the HCEs are the one's with the high balance accounts as it would reduce their fees and increase the NHCE's fees.

I am sorry what is the question if my answer sort of comes across as being a smart alec answer -- which wasn't the intent? If you are making a match the same size as the forf and they reduce that means the employer puts in zero dollars and you get rid of the forf. I don't see a question any more.

I have seen plans that charge the flat fee on balances over a given number-- say $1,000. So if the flat fee tended to work out to $15/person the highest perecentage of 1.5%. For the rest of the fees either the sponsor paid them. Since the HCEs all had large balances no discrimination issues. I had one client that just spread the remaining fees across everyone so the lower balance people paid something. This did mean that the 1,000 and larger balances were paying two sets of fees. This was a very large plan with large balances so the amount of the 2nd layer tended to not be very material. You could obviously play with these numbers setting the cut off line at $500 or $1,500. I also has one client just do the flat fee thing up to 100% of a person's balance. It was rare a single fee allocation would wipe a person out. But as interest rates dropped the people who were in the money market fund always had a neg earnings because of this policy. We talked and wrote many letters warning this client that was very risky. It also hurt the ADP test as lower paid employees quickly learned they couldn't save money in the plan as the fees were taking too large of a bite from their balances.

Make a match equal to the size of the forfitures.

File the form and pay the excise tax. They will get a bill for a late filing and late payment penalty and interest. If you write a letter to the IRS asking them to waive the penalty and give a good reason and it really is the first time they might waive the penalty. They will never waive the interest. I used to work for the IRS back in the '80s and they are firm that you had use of the money so you owe the interest. I have had pretty good lucky with the penalty waivers but it isn't 100%.

Ok, I was hoping someone had something more useful then me. No I have not seen a definiton of "substantially all". In fact what I have always seen is in effect is "all". That is to say what I see is that the only people allowed to shares outside of the plan was employees. This was often, but not always, the founding family still owned shares and those people worked for the company. What i don't recall seeing ever was a set of bylaws that allowed non-employee members of the founding family (for example) and only employees own shares outside the ESOP. This was done with the claim those few founding family members ownership being small enough to mean "substantially all" shares were restricted.

It would suck more if the employer has a cash flow crisis because it was required to make a match. What hapened here is bad as expectations were raised and people made very reasonable plans based on company communications. I get it and understand the emotions and thinking in this case. On the other hand life does happen and kicking the employer while he is down isn't going to make things better either.

Part of the issue here is how David and I am using the term distributable event and I may be using is it in a sloppy manner. You do have to look to the document as to when you pay a person.

If you have a plan and you think you have a Partial Plan termination I STRONGLY recommend you get some professional assistance. A good ERISA attorney or TPA can help you. These rules are hard and they aren't very clear. That is the reason they are subject to a fair amount of litigation. Also, don't look to plan termination rules to guide you on Partial Plan Terminations. So in order 1) Since a partial plan termination is caused by a large number of people being terminated that is the distributable event for those people. For the people who did not get terminated they don't have a distributiable event. 2) The time period that a partial plan termination can cover can be rather long. It really is a facts and circimstances rule. This is where good advice will help you. There are cases where everyone one laid off over a two year period were ruled as being effected by the partial plan termination. You have to look at things like was the termination voluntary or involuntary. You have to look at things like was there a series of related reductions in force. Each case has to be looked at on a case by case setting. 3) I don't think I have ever seen anyone file for a determination letter for a partial plan termination. I am not even sure it can be done. Sorry if this wasn't as detailed as you were hoping. I really do think you need to find an ERISA attorney or good TPA to look at all the facts. I understand one not wanting to spend money if you have been laying off people as that means the company is not doing well. In this case the money spent will very likely save you time, money and grief down the road. Think of it as cheap insurance.

Money is fungible. If your plan allows forfitures to be used to pay expenses and the employer has historically not done so do it now. Whatever amount of earnings they need to fund they do so. They use the forfitues to pay an equal amount of expenses. You have solved the problem and followed the letter of the law. You may not have that fact set but I thought I would throw it out there.

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?