ESOP Guy

Congress needed money back in the past so they passed a law requiring a 20% withholding on plan distributions. I know what you are thinking but withholding and the final tax due is not the same. Under Federal budget rules withholding is income the day it is collected and if a refund happens it is an expense when it happens. So to speed up withholding created a one time burst of revenue. Such is the Federal Gov't accounting rules. It is found in the Internal Revenue Code forget which section.

I think so-- They have to pay this person a lump sum. I just don't see how you can change the policy for this person after they have signed the forms.

We use leapfile. It is intergrated with Outlook which we use for e-mails. So I just click a button and it send the attachment secure. There is a way to allow the client to send information back via leapfile. Upsides: Easy to use The e-mail comes with the instructions on how to get the data so it is easy for the person getting the file to use Downsides: I don't like the fact that you can only go out and down load the data once. leapfile deletes the data after that. They say that helps keep it secure by not leaving the information in cyberspace. I do however get a client every few months that looks at the data and forgets to save it on their system. So I end up resending the data as it is gone when they go to look at it a 2nd time. Likewise, while I have a sent copy of the e-mail it doesn keep a copy of the attachment. This is a minor objection.

Is it the rates are so low they don't cover a fee? (Sorry if a dumb question but it has been several years since I had anything to do with a daily 401(k) plan)

I find it odd the forfitures are being held in an account that can lose money.

I think you need more facts before one can say for sure but based on the facts given..... If they did not contribute the correct contribution for 8 years as you seem to assume I don't see how you can use any of the self corrections in EPCRS. If they put in zero for all the missing years there is a chance a VCP might accept they had in effect frozen the plan years ago. I say this all the time but I am constantly amazed at what gets accepted through VCP. But I would get a legal opinion from someone who has a good amount of VCP experience before trying it. As much as they would like to put the money into an IRA the cheapest solution might be to terminate the plan take the money and pay taxes on it. After all what you are describing sounds like a disqualified plan. That is my quick thoughts on this one.

The only down side to the plan merge issues is as follows: It is my understanding that if the prior plan was disqualified for some reason and you merge the two plans that taint can merge into the buyers plan. Not sure how huge of a risk that is and my guess is there might be some lawyers who disagree. I just know on a number of situations like that I have seen lawyers advise leave the old plan to terminate and let the people take distributions from that plan. They saw the risk of the unknown as not worth it.

You took the words out of my mouth. My credit union charges as little as 2% over CD rates which on a 2 year CD is still less then 1%. I think you can make a case for something less then prime+ if you read the rules.

I don't know what you mean by "new way", but when I post, it autocorrects and marks words it thinks are spelled wrong. By new way I mean since the format of this site has changed. For example I do not get any indication I have spelled something "worng". It sounds like it must be a setting on my side of things.

Why wouldn't he need an appraisal? Doesn't the 5500 require FMV reporting of the assets? I actually researched this for a PS plan that had ER stock in it. Yes, the 5500 requires a FMV (in the sense it asks for the value of the assets so I assume they want the correct value) but it doesn't require an independent apprasial to get that FMV. Only ESOPs have a legal requirement for an independent apprasial. So if the trustee can make the case they are using a valid method of coming up with the FMV you are fine for the 5500 and the law in many cases. In the case of this employer they had an apprasial done for the intial purchase of the stock. They saw the method the apprasier used, discounted cash flow. The trustees used that method the following years. We got a letter from the IRS because we had checked the box saying the assests were not appraised by an independent apprasier. We explained the method used and the IRS was happy. Having said that I can see other problems. If there ever is a distribution I would not use that method. Failing to pay FMV at times can cause a PT. Not saying I think this is the BEST solution but if one goes into it with your eyes open regarding the risks it can be A solution. On an unrelasted subject does this new way to comment have a spell checker? I don't see it if it doesn.

ADP tested plan that fails a lot? Why not just tell them to contribute exactly the catch up amount, regardless of % of comp, and they will never have an ADP refund-- I am assuming failure is very common? But that way a low paid HCE because of ownership can still get the full catch up in. Obviously this only applies to HCEs who are old enough.

What part of the ROBs is costing him so much annualy? My guess it is the stock apprasial. If it isn't that there might be a way to lower the costs. If it is a ROBs and he is a single employee a case can be made he doens't need an annual stock apprasial. But he should talk to his lawyer before he heads down that road. One needs to understand the risks of no annaul apprasial.

No I can say that about a large number of sections of a 5500.

Can't speak to the DB plan. I have exactly once seen a MPP plan where the person wanted an annuity and wanted it as the benefit from the plan. The MPP plan bought an annuity from an insurance company with the balance in her account and that became her benefit. The annuity was still owned by the MPP trust but that allowed the plan to pay for the rest of her life and know it would have enough money. Any other plan that promises a life annuity one risks runnig out of money in the person's account before they die and then where do the funds come from? I must admit given less thought but what happens if the plan has promise a life annuity and just used the balance to fund it what happend if that person dies before the money is gone? It was a life annuity benefit so the beneficiaries aren't due the money.

Struictly speaking I think this can be done but it is full of possible problems: 1) The plan fiduciary has a duty to know the value of the assets so it would seem like someone is going to have the added expense of getting regular apprasials 2) There could be prohibited transaction issues 3) I assume this is a C corp. If it is a S corp the flow through income is subject to Unrealted Business Income Tax. 4) Technically if someone else in the plan wanted to roll in this kind of asset the plan would have to allow it. 5) I think one is going to draw the wrong kind of attention from the IRS that only the owner/trustee has done this. Not sure if it is worth the problems. This sound a LITTLE like a ROBs you might want to check out the IRS' opinion of doing those... it isn't a very high opinion.

My thought is the practical one. It doens't cost much to hold the vote and if you hold it you know you have met the requirements. Since the outcome is determined holding the vote is the cheapest way to know you have followed the rules. After all the rules only state when you have to do it, it never forbids you to do it more often.

The down side of this plan of action is if the prior dentist did something that disqualifed the 401(k) plan the new guy would be on the hook as the current sponsor if it is discovered at a later date. That is one of the reasons people don't take over someone else's plan many times. Most of the lawyers I know would advise let the old dentist close his plan and the new dentist start a new plan. Something to think about.

If you are willing to be tied to a particular brokerage /investment house you can get the doucments from them. As part of the deal you will have to run the investments through them. If your bank has a business trust department even they will have the needed documents- once again they are going to want the investment business to make their money. That is the cheap route and to some degree you get what you pay for. I would advise you to talk to some local Third Party Administrators (your accountant should know some-- find them on the web). They will cost more but they will be able to help you steer clear of the pit falls and for a solo plan it shouldn't be too costly.

I would advise you to find and speak to a look 401(k) Third Party Administrator (TPA) in your area. While it won't be free they should be able to help you set yourselves up with what you want for a fair price. The answer is "yes" to both questions. There is a chance you would need to up date your plan documents to convert. More likely you will need help with some of the annual work. There is not very much when it is just two spouses vs even adding one employee. But mistakes in this area can be costly and a little up front money is cheap insurance to stay out of trouble. Hope that helps.

Just to be clear if it is debt financed property that triggers a possible tax liability that works much like Unrealted Business Income Tax (UBTI). Since the whole point of a 401(k) is to defer taxes this is a problem. The other problem would seem to be a margin call. If the person doesn't want to sell they would have to add money. What if the additonal money turns out to exceed one of the contribution limits? Edit: I guess to answer your questin directly: I am unware of a rule that says it isn't allowed. I can think of a number of rules that says it is a bad idea.

I have seen this before where a 401(k) plan allowed people to choose to be in a fund that was a hedge fund and you could not sell before X number of years after the investment had happened. This was the person's choice to get in, they were made to sign a document that said they were told and understand they could not sell even for a distribution until the X number of years was up. That plan's attorney was fine but as you can see they went to great lenghts to protect themselves.

The other thing you want to look at is currently the rules regarding fiduciary liability and insurance products seems strict. It has been a about 2 years since I last helped a plan add an annuity option but I recall the plan fiduciaries not only had to make sure the option was a good investment but they had to take some care to make sure the insurance company that was offering it was solild. One has reason to believe that if a participant took that company's produce it would be around to pay the for the person's whole life.

If you have access to the Sungard's "The Pension Library ERISA Newsletter" which is a for pay service their Number 2006-2 covers USSERA and answers just about any question you could have with examples. As a general rule the answer is "yes" they are due a PS contribution. That person would have a year of service for vesting and benefit accrual in basically all instances.

Way back in the day when I worked some rather small 401(k) plans I seem to recall the brokers working out distributions in kind for the clients. They did this to keep people who did alot of business with them happy. I can't say for sure it was an ACAT but what happened was 100 shares of IBM left the plan (for example) and we had to prepare a 1099-R based on the value of those shares as of close of the markets on that day. It was a clear distribution from a plan that the person (a doctor) who was just an employee to the 401(k) plan for his own practice. Like I said the brokers made it work because there was alot of stock in both the sending plan and going to the recieving plan and that doctor didn't want to have to pay commisssion to sell/buy his stocks.

The facts here are unclear. So I am going to ask a few questions to get a little clarity. What was the relationship of the sending plan to the recieving plan? Was the transfer from one 401(k) plan that your client sponsored to another 401(k) plan they sponsored? What triggered the moved? Was it he just wanted to use a different investment house? As far as I know there is nothing special about the move being done via ACAT that makes a difference although.