ESOP Guy

One practical suggestion if you haven't done this already. If you have the document as a Word or pdf file search on the word forfeit. I have on a number of occasions not found what I was looking for by reading only to find it when I search on the right word. I am amazed at all the odd placed attorneys find to hide provisions. If you have Adobe Acrobat (not just reader) you can scan the document and then you should be able to: scan a paper document then in Acrobat under Documents OCR text recognition Recognize text using OCR It can take a while that allows you to search a scanned document. If I am explaining things you know and have done sorry not trying to insult your intelligence it is just plan documents are large and I have found this helps me find what I am looking for in plan documents. If there is no section dealing with it I would go back to the attorney who drafted the document and have them solve it. It really is their bad. One possible solution is that all documents give the administrator discretion to interpret the document including where silent in a reasonable nondiscriminatory manner. You would think a reallocation or used to pay expenses would be reasonable and nondiscriminatory.

Can we start by clarifying one thing? The title of the thread you mention an asset acquisition. The company you acquired was via an asset purchase and not a stock purchase, correct? Or put another way someone still owns the other company as they are the shareholder(s) or that company, correct? That company might not have any assets but your firm doesn't own the stock, correct? I ask because if you don't own the stock of the company who is sponsoring the 401(k) plan I am not sure you can even use their 401(k) plan. You might need to set up your own plan if you want everyone to have a 401(k) plan. Can you just give us a little more details on the stock ownership relationship between the two companies?

You use the oldest beneficiary's age not the youngest. It has been years since I have done one but I do recall clearly it is the oldest not youngest. Also, there is no recalculation of age with non-spouse beneficary.

While I agree it is normal I also think it is an abuse of the statute of limitation rules. I get it if they didn't have those amendments in place the plan is still disqualified. But that is true of any restatement. I work with ESOPs that have been around since the early '80s. If the TEFRA/DEFRA/REA (I think I got that alphabet soup right) restatement wasn't done the plan is in theory disqualified. Should they be able to ask for 30 year old plan documents? I guess the reply is people should keep their records forever but that is part of the reason one has statute of limitation rules. Things get old and records become less reliable or lost.

Yes there is a 10% excise tax every year that the non-deductable contribution is in the plan. You can't take it out. So the only way to fix the problem would be to stop contribution in future years until you have deducted it all. Don't do it. http://us-code.laws.com/title-26-internal-revenue-code/subtitle-d-miscellaneous-excise-taxes/chapter-43-qualified-pension-etc-plans/4972 You report and pay the tax on a Form 5330 http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&sqi=2&ved=0CCQQFjAA&url=http%3A%2F%2Fwww.irs.gov%2Fpub%2Firs-pdf%2Ff5330.pdf&ei=NVn0UqD1EYLQyAGr44AI&usg=AFQjCNFFmwtKBwSZLEs_AjkB-Nw7GzfYog&bvm=bv.60799247,d.aWc Edit: I can't think of any reason you would have a cross tested one man plan.

My daughter when she was real young did describe records as "those really big CDs people used to use".

Leaving aside all the other issues around the purchase of the building for a moment and just looking at the plan's facts. If I understand it correctly you are saying a 401(k) plan owns a building. If that is correct I am not aware of any rule that says the plan can't take out a loan on one of its own assets. The anti-alienation/assignment rules apply to paying a debt outside of the plan with someone's plan benefits. Simple example: my bank can't go after my 401(k) funds to pay off my credit card debt. They do not apply to a debt held by the plan secured by an asset in the plan. They do need to be aware that they could generate taxes owed on any income from the debt generated income in the plan. But I don't think there is a blanket rule saying a loan can't be taken out on plan owned real estate.

Just saw other reply: I am assuming here the question means the plan bought the building. If the sponsor took money from the plan to buy a building for the sponsor they need to hire an ERISA attorney to sort out the mess they made. (I would also add you might not want to use these CPAs for any services as they do reckless acts without researching them well.) Before you get to your question have you reviewed the building purchase for a Prohibited Transaction (PT)? You need to look at who they bought the build from. Is the firm renting space in the building? One could go on and on about possible PT issues on the purchase. This by the way is why 401(k) plans shouldn't own these kinds of assets the cash flow issues are a pain. But that ship has sailed I guess. As far as I know they can take a loan out on the property as long as it isn't a PT. The issue a loan brings is that it could mean the plan owes taxes on any income the building generates. Do a search on the terms "debt financed income in qualified plans". They could end up with having to pay UBIT. I think it is IRC 514 but I could be wrong. The other issues a loan brings is can the property generate enough income to pay the loan or will they have to make contributions? If they have to make contributions and what if they can't deduct those contributions? Now they have a penalty for non-deductible contributions. Regardless of a loan or not how do they pay out distributions? They have to value the building to know everyone's account balance. What happens if they have a bunch of people leave and they don't have enough cash to support a loan and distributions? They could once again be forced to make a large contribution. I think they can do it. I just think the are going to find it to be more bother then it was worth.

I believe your understanding is incorrect. Since RMDs are not eligible for a rollover there is not rollover. If you deposit and RMD in an IRA what I have always understood happened is this: You took a taxable RMD and then made a contribution to the IRA. The taxable status of the contribution to the IRA is subject to the IRA contribution rules. The other way to see it is an error has been made that needs to be corrected. But I don't believe you can ever correctly say an RMD has been rolled over to an IRA.

Will adding them put them so they now need an audit? If they are going to get an audit either way or not need an audit either way my deep down opinion is stop over thinking it and do what seems reasonable. I just have never seen an IRS or DOL audit of a 5500 focus on the counts when it is clear an audit isn't at stake. If there is an audit handing on the question then it is tougher. If the excess is going to be refunded I would lean towards not counting them but it might be one of the few times I would get a legal opinion on a 5500 count.

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.