ESOP Guy

We left IL in our early 30s and I beleive she can collect full benefits around 65. I would have to look and see there might be an earlier age for full benefits. She is vested. As far as I can tell becoming vested in the IL TRS is rather easy. It might be from day one in fact. She was given an option to take a "refund" of her contributions and that money has been creditied with interest every year since she left. The refund amount goes up every year by an interest rate factor. But my understanding is if she did that she would be forgoing the DB annuity option. To me the question would be if you thought about taking such a refund is the refund more or less then the PV of the annuity. The refund is not the PV of the future annuity. The pension reserve established at age 65 is the PV of future annuity income payments. The refund left on deposit with the TRS simply helps the TRS fund the PV of the prospective annuity payments----that PV is the Pension Reserve. What are you blathering about? I never said the refund is the Present Value of the annuity. In fact I clearly said it wasn't the PV of the annuity. What I said was the only way to determine if you should take the refund or not is if the refund exceeded the PV of the annuity. Or put another way could I invest any refund in such a way that when my wife turned 65 I could buy a better annuity with a 3% COLA. That is what a PV calculation of an annuity to today would measure. Are you trying to sell me something? Because honestly I am not a DB expert but the more you talk the more I am convinced you know less then me. Otherwise I am at a lost as to why you keep trying to convince me to think taking a refund is the better idea when you are making no argument for it that makes any sense to me.

We do it all the time. If the person puts on their form they want extra we do it.

Your question is a little unclear. But see page 8 of the Form 5330 instructions. From your numbers I can't tell what they are but the 15% excise tax in on just the interest not the full amount of the late def. It has been a little while but I am pretty sure you have to file a Form 5330 for every year until it is fully corrected. By fully corected that mean all the interest is paid also. So if they just found out about it now and are paying the interest in 2013 you need to file through 2013. I know that one isn't due for a while but you might as well get it out of the way in my mind.

I know FT Williams and the program put out by Datair both allow that. I think but it has been years that the Relius program also allows one to do what you are asking. In fact I would be shocked if any of the big name 5500 software packages which all have the 8955-SSA software didn't allow one to electronically upload data.

We left IL in our early 30s and I beleive she can collect full benefits around 65. I would have to look and see there might be an earlier age for full benefits. She is vested. As far as I can tell becoming vested in the IL TRS is rather easy. It might be from day one in fact. She was given an option to take a "refund" of her contributions and that money has been creditied with interest every year since she left. The refund amount goes up every year by an interest rate factor. But my understanding is if she did that she would be forgoing the DB annuity option. To me the question would be if you thought about taking such a refund is the refund more or less then the PV of the annuity.

You don't say which state's system you are dealing with but the name you are using Teacher's Retirement System happens to be the name of the IL teachers retirement plan. I know it also offers refunds on contributions. IF YOU ARE DEALING WITH THE IL SYSTEM keep reading (if not just ignore me) Full disclosure I am NOT an expert on the IL system. I am some guy who works in the retirement field whose wife was an IL teacher for 11 years before she went into working for private schools in MO. You might want to get some advice from an expert before taking that refund. In my mind the refund is a bad deal in IL. It is just the employee's contributions with a very small interest rate credit. If you take it you are giving up a pension payment with a cost of living adjustment every year. There maybe cases where the lump sum works. But in the case of my wife they were offering here a lump sum to give up a stream of payments starting when she hit retirement age for as long as she lives with annual cost of living payments. I had a acturary friend of mine help me work out the present value of that stream and the refund just didn't make sense. I WANT TO BE VERY CLEAR HERE: Don't just take some guys advise from a discussion board other then maybe to realize it might be worth asking more questions before you decide what you want to do.

If the ROBS is set up correctly the cash was exchanged for shares in a corporation which then used the funds to invest in the franchise. So you would put the FMV of the stock of the corporation that own the franchise on the Sch I. I am not trying to be mean here but based on your question it would appear you are in over your head. I would strongly suggest you seek out competent advice on this topic before you go farther. ROBS are a tricky subject if for no other reason the IRS has basically gone on record as saying they don't like them. Money spent up front will look like cheap insurance if an IRS agent comes walking through the door.

My guess you are not getting any replies because the answer is unclear. I am unaware of any guidence on this topic. You have asked the perfect grey area question. My guess is the plan adminstrator and their attorney is going to have to decide how comfortable they are defending this kind of change or not.

I am not sure I understand the questions.

I have never heard or seen someone take out the otherwise excludeables in a partial termination calc. It is my understanding that the IRS seems to be saying you have to include all terms and not just involuntary terms. An idea I would add that makes no sense in retail firms and staffing firms. They can have over 100% turn over in a year that is just normal. I guess you just make the facts and circumstances case that it is the industry for those clients.

Follow up comment regarding 411(d)(6). I have had conversations with ERISA lawyers regarding the following situatuion. (This might be relveant to this conversation) There was a plan that had 3 year installments. It needed to change to 5 year installments because it was having what they thought were short term cash flow problems. The lawyer had no problem with the amendment changing the plan for people who hadn't terminated. But for the people who had already started the 3 year intallments he would not let those change to 5 year installments. The company could only apply the 5 years to people who terminated and started payments after the amendment was in place.

As a general rule amending a plan to change forms of distributions can have problems with the anti-cut back rules. ESOPs have this broadly written exception in the law that the IRS narrows in the regs. See See 411(d)(6) http://www.law.cornell.edu/uscode/text/26/411 which says: © Special rule for ESOPS For purposes of this paragraph, any— (i) tax credit employee stock ownership plan (as defined in section 409 (a)), or (ii) employee stock ownership plan (as defined in section 4975 (e)(7)),shall not be treated as failing to meet the requirements of this paragraph merely because it modifies distribution options in a nondiscriminatory manner. I can't stress enough you have to study the related regulations. The way congress wrote this seems very open ended. The regulations seem to narrow this down. Here is the reg link (search for the word ESOP) http://www.law.cornell.edu/cfr/text/26/1.411%28d%29-4 I didn't mention it before because I have my doubts this will help because this allows you to amend a plan's distirubtion section of the plan document. In your case I am hard pressed to see how one amends the plan document to say they can ignore the forms. But I am happy to be told I am wrong. At this point you have me curious enough that when you come to a resolution please give us an update.

I don't disagree that the plan may have allowed them at one point to delay the payment for up to 5 years. I just don't think the plan document is relevant to this situation. They gave him forms that talked about making a payment as soon as practical and so forth. To me that means the plan administrator made a decision to not delay it. The company's positon makes no sense. We gave you forms to elect a payment as soon as practical but that means when we have enough money in the next five years. If this person goes to the DOL I think the DOL simply isn't going to buy the company's positon. Can I quote law or part of the document? No. The reality is if the company wanted to delay it should not have put the forms out and it should have had its policy and document be clear on that issue of the delay. You keep asking the same question and I just don't see how the answer is going to change. I think the company needs a good lawyer at this point. I realize if they can't pay this guy they don't think they can afford a lawyer but to have the DOL come knocking on their door will get expensive quickly.

I think it is No Yes

Without seeing all the documents including the distribution policy and the plan document it seems like the most likely answer is "as soon as administrativerly feasible". Not trying to be rude here but given the date of the first question if this guy hasn't benn paid that would seem problematic. If you don't mind me asking what is the real issue here? Is it the company doesn't have the money to pay or is it something about this guy that makes them not want to pay? (Belgarath kind of beat me to this last question but I thought I would ask it otherwise becuase there really does seem like we aren't seeing the real issue here. And if it is shared maybe ideas to help solve the real issue can bre made.)

I agree with Lous before you take the money and pay your bills get good advise. But if you look at the distribution forms most allow you to waive the 30 days. The 30 days was suppose to protect you not delay you.

To answer your question they can not file on time a correct 5500. You can try to file and put a pdf note in the auditors attachment place on the efile. I hear that buys you some time but that is still an incomplete return.

I have an ESOP where the families that used to own the stock sold 100% of it to the ESOP. During the sale they took back enough warrants that if they exercised them they all would be >5% owners. I have looked at the HCE definistion and as long as the warrants don't have voting rights it would seem like these people are not HCEs by ownership. I am having a brain breakdown. Do people agree or disagree?

Wouldn't this be a document question? Shouldn't the document tell you the order of the earnings allocation? Seems like most would be BB-dist but it could be different,. Even if this is a PT I don't see why you wouldn't follow the document for allocating earnings.

It is a 5500 issue because you have to mark box 10(b) if it is a PT.

If they deducted the Sept 2013 payment in 2012 why wouldn't you allocate that part of the release at 12/31/2012? Check the document but that seems like the most likely thing it is going to say.

As a former IRS agent allow me to make this suggestion. Have you tried talking to the auditor about the situation and the practical issues you face? You might find they are open to some simplifing assumptions- like you compute each of the account's ROI by quarter or year and apply that rate to all the late deposits for that period. Most auditors are still people and are mostly interested in being fair to the participant but understand how to be reasonable about it.

Why not just change the last day from 10/31 to 9/30? It seems to meet all the client's goals.

You have no legal recourse. The limits are the law. The only thing I can think of to add to the savings if you have a HSA it has a catch up provision so you could max that out also. I beleive the IRA has a $1,000 catch up also. I would always suggest putting in the max 401(k). If you get a refund so be it that way you know at least you have put the max in. If it turns out you stop and you could have put in more you can't go back and fix that.

Yes! You owe a 15% excise tax on the value of the advise given during the record period. However, if you can show that the advice qualifies for one of the 15 narrowly defined class exemptions you may not owe any excise tax. However, you can only know if you qualify for one of the exemptions by first filing for an advice Determination letter with the IRS. They will get back to you as soon as they issue the needed guidance on what "de minimis" means in regards to a 414(s) test. Until then as long as you make good faith attempts to comply to with the comment rules you have will have a chance to amend any previous advice given. Hope that helped.