ESOP Guy

Unless you plan running every participant's SSN you have on file against the Social Security's death database I am not sure how you find this out. This one of the reasons I stress with my clients to not allow "lost" participants linger. As soon as you get mail returned start a search for them or their beneficiary. Even in that case if mailed information didn't get returned nothing would have tipped you off.

If the check isn't issued until 2014 I don't see how constructive receipt happens until 2014. The rule of constructive receipt is the person being paid had to have the ability to control the money. If the check doesn't exist in 2013 i don't see how anyone can make the claim they had control of the money.

Wouldn't have been possible to have written so the plan is effective the 1/1 and no one enters until the day the plan was signed in 2/2013? Strictly speaking then isn't there zero employees on the first day of the plan year? I know I have seen the opposite sneak up on plan sponsors. They sign a plan in December making the plan effective 1/1 and allow anyone hired in the first year to enter 1/1 or their hire date in in that year. They now have over 100 people the first year and have to get an audit. Having said that I am not sure that is actionable as all these ideas are rather discretionary. I will be the first one to admit I don't think about this too much. Most of the plans I work with are so far over 100 or 120 at most you would save the first year audit. After that it would be clear you have to get an audit.

I would be careful here. The IRS can if the decide to try and look beyond mere legal form to economic reality. Learned about that while working for the IRS. If the way you get them to drop to below 5% is in a effect a mandated sell-buy where their ownership is really not at risk of not being owned in the future after the year they are not a 5% owner you might have a fight. I guess what I am trying to say is if this person sells their portion of the business but the sale agreement mandates it has to be sold back to the original owner the next year the IRS could try and fight you. The courts have always said that the IRS can claim shame transactions done for no economic purpose other then tax savings can be undone or ignored for tax purposes. Since you don't give the specific facts not saying that is being done here. But one can get too clever in tax planning and trying to out smart the rules. Although as a rule in order for the IRS to win an economic substance argument they have to go to court as your side will keep saying, "we followed the rules to the letter of the law". Some thing to look into. http://www.irs.gov/Businesses/Codification-of-Economic-Substance-Doctrine-and-Related-Penalties

UPS Stopped making left turns and making 3 rights, saving a lot of money and gas: http://www.pressroom.ups.com/Fact+Sheets/Saving+Fuel%3A+UPS+Saves+Fuel+and+Reduces+Emissions+the+%22Right%22+Way+by+Avoiding+Left+Turns Also subject of a Mythbusters episode: http://dsc.discovery.com/tv-shows/mythbusters/videos/right-turn-only-minimyth.htm

If there is a good amount of assets in this plan so the tax implications are large I would not simply terminate this plan and roll the money to an IRA. If the assets are high it would seem like a VCP to get everything corrected would be cheap insurance. I get the impression that if one can show the plan was run in accordance with the law but the document got out of date a VCP can be pretty forgiving. I would consult a VCP expert before you go off and do this but that is my limited experience on the topic. If the asset amount isn't very high and the tax implication are low it might be safer to just take a taxable distribution.

No one did answer the original question! Maybe the person is still looking for the answer.

Am I understanding your position correctly? In your mind this person can't take a hardship because they aren't "in-service" but what can't take a regular distribution because they aren't terminated either? If I understand your position correctly I would want to know what you think this person's status is? I think you need to see how the plan defines "in-service".

Wouldn't putting in writing that they don't think the stock is a good fit for a retirement plan pretty much be putting in writing they aren't doing their job as fiduciaries by allowing an investment in the plan that doesn't belong there? In all seriousness wouldn't that memo become Exhibit A in a stock drop lawsuit by the plaintiff's attorney?

Since it is a church you may not have money to get some specific legal advice but if the money can be found you might want to do so. I don't hold myself out as a VCP expert but I have been part of VCP filing processes for clients (never 403b clients). Since you have a bad document and that seems to require a VCP filing anyway for the missing amendments you might want to just add a different fix for the operational error. You might ask whoever is helping you the VCP (if anyone) to see if they think they can propose making the document conform with the operation. In other words change the document reto to allow the clergy to defer while fixing for the missed amendments. I have found that VCPs tend to be rather flexible and generous with "out of the box" fixes for things that were basically legal but just not all the paperwork was not done right. That might spare your clergy the loss of his tax deferred retirement account and match. But before you do that I would talk to someone who has more experience with VCPs then me. I would also not suggest this if you weren't planning on doing a VCP anyway- or put another way I would do a VCP just to fix the operational error. The cost of adding the fix of the operational error along with the document error shouldn't be that much additional cost. A VCP for the operational error by itself might not be worth it when I think you are correct you could just refund the money to the clergy with earnings. Just spit balling an idea here.

Why can't the plan sponsor just require the people to sell the stock? I mean if they don' think it is an appropriate invesment for the plan then why can't they remove it from the plan? They remove mutual funds that no longer fit the plan all the time. Ok, most of the time they replace it with a new mutual fund they think is better or the same type but you can force participants out of investments in a plan the last time I checked. The fact it is participant directed doesn't change the fact the trustee is the trustee and has powers of the trustee. It also doesn't change the fact they shouldn't allow people to choose an investment that doesn't belong on a plan.

So in these other people's mind how do you get around that if you don't want to defer when you first enter the plan? Do you have to complete a form that says in effect I want a 0% deferral election just to preserve your right to change your mind later in the year? It has been a while since I worked 401(k) plans and I am stunned at these people's position. As for your DOL question I would start first by talking to the powers to be at the plan sponsor and saber rattle that these people come up with a good documentation for their position or the plan sponsor starts looking for new service providers. I would only bring the DOL into this as a very last resort as that will "shine a light" on the whole plan and employer that you might not want to do.

It can be done. I had a client do it once. There are a number of issues that you need to watch out for including many of the ones you mention. Do they have an ERISA attorney helping them set this up? There is at least one law firm I know of that seems to specialize in doing this for people and they help their clients avoid many of the pit falls of this kind of set up. They tend to call their product ESOT instead of ESOP. To answer you questions: 1) It can be either Treasury stock or purchased stock. What market is the stock traded on? Some markets count as valid markets to use to value the stock and other aren't. 2) It seems like most of the fiduciary concerns are around value of the stock. It seems like there are ways around the concern of too much investments in one stock. 3) It isn't clear what the goal is? If it is to allow the employees to share in the growth of the company via share price growth then maybe a non-qualified plan, phantom stock or stock appreciation rights might do the trick. 4) I am not sure there are any special risks to the TPA here. I would look out for Prohibited Transactions between the plan and the sponsor. The classic example for an ESOP that would seem relevant here would be if the stock was apprasied on 12/31/2012 and they now sell stock to or from the plan to/from sponsor the general understanding in the ESOP world is too much time has passed to use the 12/31/2012 price. You would have to get a new price or you have a PT.

How it gets enforced is if you were to file a 12/31/2012 8955 now the IRS wll send you a bill. We had it happen recently. Yes, one solution would seem to be put all the people on a 2013 8955 and file it now. As you see there is no termination date listed on the 8955.

Yeah I can't think of any reason you can't do it that way. Just have to admit I don't recall ever seeing it that way.

Read your document very closely. My guess is it will say RMDs are an exception to the lump sum rule. It will likely say this in the lump sum section-- something to the effect "except as provided for in section (RMD section listed here).... pay in lump sum...." It might be in the RMD section and it will say something to the effect this is an exception to what is send in the regular distribution section of the document. I have never seen a document that requires one to take their full lump sum in order to fulfill the RMD rules.

The 415 question is the easy question. Dividends are never Annual Additions regardless of how they are used. I don't recall ever seeing dividends on unallocated shares being passed through. I have to admit I don't recall ever researching the question. It seems like all I recall ever seeing is pay the loan or allocated to the participants. I am doing this from memory. But as you say the document should tell you how to do it every time. I know I have never seen a dividend allocation that wasn't spelled out in great detail in the document.

Check the Form 5500 for each plan my guess is they are not both 001. If they are both 001 that is more likely a mistake on the 5500 and it will not change the answer about the audit. For what it is worth I have seen a company that had a plan for the people whose last name was A-L and one whose last name was M-Z to avoid the audit requirement. Odd but true.

I really am not trying to be harsh or mean here but you might want to review your procedures. It has been a while since I worked for a firm that had the 401(k) plan loans automated to the point where it all could be done on the web. But the last step was to have a human look at the loan before it was given final approval to fund just to make sure it followed all the rules. It sounds like it is possible for a loan to get fully approved and funded without a human ever looking at it. I am all for automation to save costs and allow each employee to be more productive but this might be just a little too automated. I guess I could be over assuming here and the issue is something else.

It appear they can go back forever. http://www.usatoday.com/story/news/nation/2013/05/06/mother-social-security-debt/2138219/ Why doesn't this person just call them up and ask a few simple questions?

I agree with Lou they have to pay the valid QDRO. If the AP were alive yes they could modify the agreement in my mind to reflect no payment from the plan. But that seems hard to do now.

I have seen it both ways and I understand the people who would argue the 1/1 date. As a counter I would point out no one says they turn 40 on the day before their birthday or are married 50 year on the day before their anniversary. So there is a convention that would point to the idea of your 1 year is up on the anniversary day. I think this is one of those areas where the plan administrator can make a judgement call (as all plans allow) and as long as they are consistant will not get called out on it.

It can be done and we have done it. You need to make sure the document are written so reflect this fact. Since you are the 401(k) provider you will want to make sure you plan is clear the S.H. non-elective isn't also being made to the 401(k). It can count towards the T.H. and non-discrimination rules.

I have gotten the impression over the years that 13th checks were fairly common in government plan and unheard of any place else for the reasons you outline. A simple google found there other examples http://www.in.gov/inprs/perfcolaand13thchecks.htm http://calpensions.com/2013/08/05/can-san-jose-cut-pensions-of-current-workers/ http://www.michigan.gov/documents/MPSERS4_92713_7.pdf (see page 9) http://www.publicpensioninstitute.org/public/8768.cfm%C2'>

Benefits Rights and Features Just to be clear you always have to make sure BRF are non-discriminitory and in some cases you have to do an actual test of your BRF.