ESOP Guy

The embezzlement while unfortunate is irrelvant. Since this person wasn't paid before the plan was terminated I would say they are 100% vested.

We have always had the ESOPs issue 1099-INTs. It strikes me as the safer position. They aren't hard to generate and file I would add. To me the cost is low and the risk of being wrong is high enough.

Tom here gives an interesting fact set. What if the person taking the RMD is a more then 5% owner who is not terminated? His reading would be that once this person turned 70.5 they could take an RMD or more up to their whole balance. The practical effect of this is only HCEs who are 5% owner or more now have an in-service distribution option that the plan might not give any of the employed NHCEs who are 70.5. Once again maybe the law does authorize discrimination in favor of old HCEs but I just don't see it. Interesting thoughts although.

I would add while I have limited experiance with VCP filing what I have found is they tend to accept just about any reasonable fix. I have seen cases where there was EPCRS guidence and the proposed solution was reasonable but not as expensive as EPCRS would have you do. The VCP solution was accepted by the IRS. I get the impression the people who approve VCPs have rather broad discresion. So if you have a particular problme you might want to propose a solution that is reasonable and see what happens. I realize some people might want to know their solution will be accepted but I am not sure you really can know that.

We have had this debate before. The question here does the idea of a Required Minimum Distribution allow for more then the minimum? I tend to fall in the "no" camp. If you pay more then the RMD and there isn't some other plan provision that allows you to take more then you just violated the terms of the document. I know there are others here how don't agree with that position. Some document seem to support the idea you can take more. It seems to say the RMD is just that a minimum but it leave open the idea of more. So I would double check your plan language. If you document reads that way I can see that as being ok per what I say below. So if the person is still employed and you take more then the RMD you need to have some kind of in-service provision (or maybe an installment provision) in the plan. If the person is not still employed and the plan say you pay lump sums and you pay more then the RMD and it was the rest of the balance I don't see how you pay a partial payment. I see part of this could be solved by allowing people who are say 65 or older in-service distributions. You tend to not have too many over 65 year olds still employed so it should create too much work and it covers your 70.5 people. It should be a broad enough group that any discussion of discrimination shouldn't be a problem. I don't see any reason to cater to former employees. If they want to control how much money they take out every year roll 100% of their balance to an IRA and leave the plan alone.

12AX7 is 100% correct. If you read the document carefully it will answer this question and that is the only way to know for sure what the correct answer is.

You need to look at the rules that allow you to test employees from an acquisition separately from the other employees. Here is a link to someone that talks about it. Hope this gives you a place to start the rest of your research. It has been a long time since I did this so I don't want to try and do it from memory. http://www.tepferconsulting.com/publications/_effects-mergers.pdf Edit: As I sit here longer it is coming back to me. This article is old but I am not aware of any change to these rules in the last 15 to 20 years. You basically have 2 plan year ends before you have to do combined testing. I think these rules will serve your purpose.

I am NOT a 403(b) expert maybe one of them will help confirm or say I am wrong. I would start by talking with your new vendor. They most likely have experts on staff that can help guide you through the process. As a general rule a correction is not a form of contribution so the money can just be put into the plan. A true correction would mostly likely have an adjustment for lost earnings. Like I said I would think your vendor should be able to give you some help here.

Don't forget if he is at least 50 the catch up doesn't count for any test. So a 50 year old HCE can always def the catch up amount.

I can't think of any reason why you can't do so.

To get more specific on the rollover vs transfers here is the difference: 1) Did the participants of the MPP complete distribution forms and have the choice to take the money, roll to an IRA or roll to the PSP? or 2) Was the money transfered by the trustee from the MPP to the PSP? Depending on which one of those happened will drive how you answer your original question.

I hadn't answered before because my answers are basically like the others. I can't think of a reason why not but can't seem to say I have seen guidance that clearly says "yes". The only think I will add is I have seen KSOPs with a Roth feature in them. Most KSOP are run like two different plans. That is to say the 401(k) portion of the plan is all invested in mutual funds and the ESOP portion in the ER stock. But I have seen KSOPs that the employer stock is one of the investment elections. It seems like that is more common with a daily valued 401(k) portion and a publicly traded ER stock. There can be practical issues with those kinds of KSOPs it seems like but it can be done.

What little I have seen on 401(k) behavior suggests that the size of the match doesn't influence the deferral rate as much as how high one has to go to get 100% of it. That is to say when they studied companies with similar work forces and one had a 50% of the first 6% and the other had 33.3% of the first 9% the 2nd company had a much higher average deferral rate. You will not the max match one could get in either company was 3%. If that holds true in your company that would suggest most will try and have def at a rate that will get them all the match they can get.

While you might have a point my guess the counter argument is the fiduciaries also have a duty to safe guard the assets. One way to do that is have an external audit. That is why the requirement exists in the first place. There is a presumption with the regulators an audited plan is a more secure plan for the people it benefits. So which duty is more important? My guess is it depends on why the fiduciaries are in court. Is for fees that are too high or because someone ran off with most of the assets or didn't report the accruals correctly? Now it seems like auditors are asking more questions about if the plan is really qualified or not.

And if you search for the word "ESOP" in the 410(b) regulations it is clear you have to test the ESOP and non-ESOP as separate plans for coverage unless they meet the requirements you listed. http://www.law.cornell.edu/cfr/text/26/1.410%28b%29-7 That is why I am thinking you can't do what you want to do. I am still interested in hear what TAG says.

If I recall in the last post you said you were going to ask TAG. Did they not have an answer or is my memory faulty?

Here is my thinking in the form of an extreme example to make my point obvious. What would the IRS or DOL's reaction be if 100% of the HCEs took out $50k loans to purchase a house and 100% of the NHCE's took out $30k loans but had just the legal limits been put in the plan could have taken out $50k loan paid back over 5 years? I can imagine having an uncomfortable conversation about discrimination. Ok, my fact set is rather fake in how often will 100% of either group be able to do what I said. But how would you know if you didn't restrict people's ability to take out a max loan isn't discriminatory without reviewing at least the loans taken out every year and possibly every loan outstanding? I will admit I have never researched this question so I can't say if it is every loan taken out in any given year or every loan outstanding. But taking out a loan and its limits is clearly a benefit/right/feature of the plan subject to the nondiscrimination rules. So to me the debate is over how you test this b/r/f not if you have to test the b/r/f.

Wouldn't they be different features? NHCEs presumably would have same access to residential loans as HCEs. Though I think from an admin stand point I can't see why they would want to add complexity by having different limits. But BG5150 echo's my sentiments on residential loans longer than 5 years from retirement plans. Participant loans are bad enough without potentially offering 30 year participant loans that I've occasionally seen in some plans. I hadn't thought of it in terms of the type of loan being a different feature. How far can your parse that idea? Is allowing a $1k to $2k loan being only 1 year long and a over $2k loan up to 5 years different features or are they both loans? How different do the features have to be to be a new benefit rights and feature? I could see someone just as rationally saying loans is the feature which is the assumption my first comment was based on. But I see your point-- interesting idea.

The problem with this idea is how do you test the benefits, rights and features? If a HCE takes a max residential loan and a NHCE gets limited to $15k how would you detect that to prove it passes the nondiscrimination test? This just strikes me as a testing mess from a practical point of view. You have to figure out every year which loans have been capped and which ones haven't been capped under the new rules and test that reality.

Yesrod5: You are grasping at straws. No plan is going to risk disqualification by not paying an RMD to a former employee who has terminated from their firm on the basis of your argument. Are you prepared to indemnify the previous employer if the IRS disqualifies the prior employer's plan for failure to make the RMD? If not and I was the prior employer I would laugh at your argument and write the person a check for the RMD. If they in turn roll that RMD to an IRA it isn't my problem as a plan administrator/sponsor. As a former IRS agent I would classify any such rollover as not a qualified rollover to an IRA and let the litigation begin. Is this person really willing to risk a 50% excise tax on the RMD amount if you are wrong? I just don't see the risk/reward as being worth it on a practical level even if the RMD is a rather large amount. Your argument that the intent of the law is not to pay a RMD here is an argument only a person trying to rationalize their position would like.

I think he has to take an RMD as he is terminated from the firm that had the plan. Once he rolls it over to a new plan the RMDs could stop but I don't see how you avoid the first RMD.

It has been a long time. I think the answer is "no". If I recall in order to do a rate group test on all plans you have to be able to do the 410(b) testing on all plans. There is part of the 410(b) regulations that say you can't combine an ESOP with other plans-- if I am recalling correctly.

For what it is worth I have used PBI to find lost participants in DC plans and have had liked the results every time.

You really need a lawyer for this. I am doing this from memory but it can only be done if you distribute in the form of stock. The person sells the stock to the company via their put option. The company can give cash and a note to pay the put option. However, this isn't a very practical option. The note has to meet very strict rules. What you will find is that one of the rules is the note has to be secured. These rules pretty much end up saying that in case of the company can't pay or goes bankrupt the person still gets paid. So company has to get a bank to guarantee the note or the note has to have a lien on assets that this person collects 1st if they are sold. So the few times I have had a client look into this they find that if they don't have the money to pay now they can't meet this requirement. IF YOU TRY THIS GET A LAWYER THAT KNOWS ESOPS.

And as far as I am concerned until the checks are issued the money is on the 5500.