ESOP Guy

I have seen it done in a Profit Sharing plan. I have never seen it done in a 401(k) plan. You might want to check with an attorney that knows security law. The few times I have had conversations with attorneys regarding using 401(k) deferrals to buy stock in an ESOP there has always been concerns regarding securities law. You are in effect making a market for the stock so you need to make sure you don't accidently run afoul of those laws. You don't want to find yourself in a position of having had to put out a prospectus. The key in those attorney's mind was there is a big difference using employer money contributed on behalf of someone and money coming from their pay check. I don't know the detials but I have had the point made to me several times over about a 10 year span that you need to watch out for this. There are also possible PT issues. There is a law firm out there that advertises helping one set up profit sharing plans that hold closely held stock. Lastly, remember only ESOPs get the nice benefit of not owing taxes on the pass through income of an S corp. So if the company is an S corp you are going to want an ESOP.

I hope they aren't still looking for new software after nearly 13 years of searching! But I am sure they will take your recommendation under advisement.

This is full of humor... Andy would like the government to play by the same rules as it requires the private sector!! That is a funny joke.

I would add if this plan has to file a Form 5500 and it checks the box that says the stock isn't appraised annually expect a letter from the IRS asking questions about the plan. I had a PS plan that didn't value its stock with an appraiser every year and we wrote many letters to the IRS about the plan. As far as I can tell if done right they are legal. They are just a mine field waiting to blow up in your face because the IRS has decided they don't like them. Here is more information about them from the IRS in case you haven't seen this stuff: http://www.irs.gov/Retirement-Plans/Retire...pliance-Project This is older but it still spells out much of the IRS' thinking as far as I can tell: http://www.irs.gov/pub/irs-tege/robs_guidelines.pdf I for one like the idea of ROBs almost used one once to get myself in business after being laid off. But the reality is you better make sure it is all done right as it is clear the IRS doesn't like them.

First off is there a distributable event or does the plan have an in-service provision? If not, then under what authority is the person taking a payment in excess of the RMD? On the amount over the RMD there is clearly 20% withholding. Those funds can be rolled over so you have to withhold 20%. I get a lot of people telling me that an RMD you can withhold 0% which MIGHT be true if a person elects to do so, but the old 10% withholding in my mind is standard. But in no case can the amount in excess of the RMD can the withholding be 0% in my mind. Edit: I seem to recall a rather long thread not that long ago where it was debated if the RMD was a minimum or a maximum. If memory recalls correctly some plans seem to be written to allow the RMD to truly be a minimum and other you have to pay out just the RMD. But the point is unless the plan has an in-service withdrawal provision I would not assume an active owner can just take out more then the RMD.

I don't see any reason to terminate the plan. But given the late date in the year it seems like it would be cleaner to make the change effective 1/1/2013. You would still have to track the MPP money and for those benefits do the J&S distribution requirements even after you change to a PS plan. One can think of it as having a MPP source in the PS plan and you have to treat that money as MPP money as if that plan still existed. It is only future money that can be treated as PS money. Sorry if you knew all the stuff I added towards the end of my comment.

The only thing to watch is if this happened this month and the next month is when the next deposit is due you have crossed years. If I recall correctly they can't deduct 401(k) deferrals until they are earned. This isn't something that can't be fixed but one just needs to be careful. If this had happened in July and the fix happens in Aug it would be a non-issue. But most tax returns are done on a 12/31 year end. But I would just leave the money in the plan also and just decrease future deposits.

Where is that "like" button again!

ESOP Guy asked about those other things because they are indicative of whether the employee is being treated as still employed. COBRA eligiblity can be a biggie for demonstrating that a termination occurred. Your plan text is all the citation you need. The situation is almost entirely definitional and will be governed by the plan. What is employment? What is eligibility? What is eligible compensation? Does the plan refer to hours of service or hours worked and what hours are counted? Does the plan refer to leaves of absence and what does it consider to be a leave? Thanks Masteff. I have been on the road but you hit on the head. My point is as you say can we tell if the person is still an employee or not. If the person is still employee it seem more likely they can defer, if terminated this pay is some kind of severance pay and you will follow those rules.

I don't have the number with my on the road but there is an EFAST2 toll free number. They will talk to you about these issues look up the filing and give you an exact answer on what you need to do. I have found this to be one of the most useful government helplines. But most likely the answer is "yes".

I might be guilty of wanting to over think this (like that never happens on this board) but let me ask a follow up question: Is the person who is on this 6 months of vacation still going to be eligible for health insurance (assuming he was while not on vacation) and so forth?

No I have thought about it more and think it is 12/31/2013 is when the first payment to him is due, but it is strictly speaking the 2nd RMD. It is just the first RMD was for an amount of zero.

Strictly speaking you are right but the first RMD is due by 4/1/2013 but its amount is zero. However, I think now I want to change my first answer. since the first RMD is due 4/1/2013 (even if zero) I believe the second RMD is due by 12/31/2013 based on the 12/31/2012 balance. But you can't extend it out to the 4/1/2014. I didn't think it out well.

I believe it the first year one needs an RMD for is 2013 so it can be as late as 4/1/2014 (with the non-extended date being 12/31/2013). An RMD at 4/1/2012 would be for 2012 which would use the 12/31/2011 balance which if I understand the facts correctly was $0. Edit: See my second answer in the thread I no long think 4/1/2014 is correct but it would be 12/31/2013. My comment below discusses the logic of my thinking.

Has anyone really answered this question? I have once worked on a PS plan where the trust company insists on taking their money on the day it is due (which is the same day they create the bill) from the trust assets and the company puts a few days later an equal amount back into the trust. And everyone from their lawyer to the firm I worked for to the CPA auditing the plan had not problem calling this an expense reimbursement and not a contribution. So the way we showed this for record keeping was an expense went out and a reimbursement went in and it netted to zero. So the employees' accounts showed no activity in regards to these money movements. I have seen more and more people the last few years take the position that can't be done this way and it has to be a contribution. I have not looked into it hard as those fact patterns have not come up lately but is there guidance out there saying you can't just call it an expense reimbursement and stop?

If I understand the question correctly the husband doesn't work for the same company as the wife correct? If that is true the plan document is going to require a rollover into the plan to come from either and employee or a participant. The husband is neither of those types of people. The wife can't roll it into the plan because it isn't her money to roll in to the plan. If the husband gifts the money to the wife she can't roll it into the plan because it isn't coming from another IRA or qualified plan-- it came from a gift. I think I have covered all the possible ways to think of this. Edit: BG5150 replied while I was writing my reply didn't mean to be a repeat.

Can we clarify one point real quick? Are any of the HCE's subject to the CBA? I know it is possible for a union member to make over the HCE comp limit but I thought I would ask to just make sure. But it is also common for all the HCEs in a company to me the non-union executives. And the way the original question is asked it isn't clear to me if the HCEs are CBA members.

I am with K2 on this one. If a person has already met the allocation conditions they would still be due a MP contribution.

You HAVE to prepare an amendment to terminate the plan at a minimum. It sounds like someone could use the services of a good TPA or lawyer. They can guide you through the process. One might want to get a D Letter on the termination. These are the things that are coming to mind at the end of the day and I am NOT saying this list is complete.

I have been a supervisor who has had to make these decisions. I once had person on my team that had two clients. One was a simple PS plan. The other was a bear of a 401(k) plan that we billed out over $200k/year on it. Others had 10 -15 but they also were billing out around $200-350k/year. (We had larger client back when I worked for that company) I think ERISA describes the better measure. I tended to look at total revenue each person was bringing in. I knew what they were being paid. I didn't have exact numbers but I know our group was being charged back a number of overhead costs. So in the end I knew that to make business sense each person had to be bringing some amount above their pay and benefit costs to cover that overhead and of course the owners wanted a profit. I would add I think I was on to something. I started to worry the numbers were getting low at one point. I kept that concern to myself. Not that long afterwards a set of layoffs happened and the numbers went back to a range much closer to where they had been. I think someone up the food chain had been doing the same math as me.

In regards to the trust idea I have seen it before as part of a larger estate planning process. I suspect because of the cost one would need large amounts of assets including the plan benefits to make it worth it. But otherwise I do think it would do the job.

It will require more cost as it will require the help of a lawyer but it would seem you would get a better result if you made a trust the beneficiary and use the trust to divide the assets. Just spitballing ideas here.

The reason you can't find a citation is because I doubt it exists. It is simply you must always run a plan in accordance with the law and plan provisions even if you have executed an amendment to terminate the plan. The RMD provisions are still in the plan and still in the law.

richw68: Think of it this way. Up to 2/28/2011 the account was yours but your then wife had rights in it. On 2/28/2011 in a perfect world if everyone had perfect knowledge the accounts would have been separated into two accounts and your ex-wife would get her share. Her share as of that day would have included contributions made on your behalf up to that day plus any gain/loss. Then after that point she would have gotten her earnings in her account and you would have gotten your earnings on your account. Every thing would have been separated and fair in everyone's mind. But we don't live in a perfect world. So while there was only one account in reality it had two parts. Part 1 is your part and Part 2 is her part. What Fidelity is doing is now trying to come up with what Part 2 equals. They are trying get both of you to a point that is neither better or worse off then if the accounts could have been split on 2/28/2011. Hope that helps. (Edit note: I appear to have written this while richw68 was adding his reply.)

I have never seen expenses paid years in advance. I have seen expenses prepaid. The most common example is if the plan tends to pay the expenses and the plan is terminating. Many of the TPA firms I worked for required a payment of most of the costs of the final work up front. They got burned too many times of issuing final reports and never collecting. But the time spread was months not years. It did at times cross plan years. But most people didn't worry about timing of allocating the expenses as no new people were entering so by and large the same group of people paid early as they did if it had been later.