ESOP Guy

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.

jpod: I have never thought of it in those terms. To me this is more an issue of pension people tend to only look to JUST pension law and if it allows an action to think it is allowable. This type of transaction very well could be allowed under pension law. But a contract is also a contract and you can't just ignore it because pension law says the breach of contract is legal. If the note says the note is due upon termination with XYZ corp and the person terminates the note is due and it can't be rolled to the new plan-- not because it isn't allowed by law but because there is no long a loan to roll-- it is due. Likewise I have seen plenty of notes the explicitly require the payment be made via payroll deduction while working for XYZ Co. Once again how does that work if they now work for ABC Co. Maybe you can get an agreement to assign both parts the loan and the payroll deduction. But at a minimum that would seem like the promissory note needs to be reworked. Is the reworking of the promissory note now a refinanced plan loan? I just think this is more complex then people tend to think of it because they tend to think ONLY in terms of pension law and not the whole transaction from a more complete perspective.

Along the same lines as RPG one needs to look at the promissory note also. Many of the notes I have seen require the person to pay via the company's payroll. Also, I have seen plan notes that become fully payable upon termination. So while pension law may allow the note to transfer the note under contract law doesn't allow it because it is suppose to be paid via the prior sponsor's payroll system or became due upon termination.

I meant to reply but forgot but Marcus brought it to the top again. I agree with Marcus I know plenty of ERISA attorneys that don't have a problem with the change you are making. But to be honest I think it is at least a grey area.

QDRO: So how would you word the amendment?

Are you just looking for a company that can print, stuff and so forth? Those kinds of companies are in every town. Good ones can save you more money then it they cost if your clients have any size. Their ability to get you lower postage rates by presorting can more then save you the cost of them doing the work. If they are of any size you should be able to send them basic files and they will print the personal data on the forms and match the whole thing up. If that is what you are looking for I would look for local businesses that can give you referrals. If you are in or near a urban area of any size you have local firms that can that kind of work.

QDRO: I like the amendment idea. If nothing else going forward you could write in the allocation section of the document that the 1,000 requirement is waived in any situation where that requirement conflicts with local labor laws.

I think MoJO has the right answer. Terminate the plan convince the people (or at least anyone who is a HCE) to take a taxable distribution. It sounds like the plan is too flawed to save. You then hope that one can run out the statute of limitations clock on the mess. edit: fix minor typos

We have an ESOP that covers a Canadian employee. She is on maternity leave. She did not work 1,000 hours. The plan requires one to credit someone on maternity leave with enough hours to avoid a break in service. But you aren't required to give enough hours to put her over 1,000 hours if she did not work it. But they are telling us Canadian law requires us to give her a contribution. What do you do when another countries laws appear to require you to violate the terms of the plan?

Double check the plan language it usually defines how the price for the put is determined. But in the end I don't know how they can show a price $8/share on the certificate and then pay $0/share. If they are putting $0/share on the certificates then they better be able to justify why they are not using the appraised value. This is the type of behavior the DOL loves to catch and beat people up over.

I will join the others in this-- you can't take the benefit from the person. They have earned a benefit under the plan and it is next to impossible to take it from them. You simply have to find out their correct SSN and id and change the account to reflect that information.