ESOP Guy

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?

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"?