ESOP Guy

The rule isn't you can't contribute to an IRA, it is you can't deduct your contribution. It would be an after-tax IRA contribution. My guess is start with the IRS publication regarding IRAs.

So how many dinglebat exclusions have you worked with over the years?

At the risk of just not ever being happy that is still not the best change or way to say that. The question before was are the "D"s counted or not. This would now seem to say you would not count a "B" either. Oh well if this were easy everybody would be doing it......

You need to read up on Stewart v. Thorpe Holding, 207 F.3d 1143 (24 EBC 1754) (9th Cir. 2000) You are going to want to read this from the DOL 2-11 http://www.dol.gov/ebsa/publications/qdros...#Administration

In a balance forward plan I have never seen it done or done it. My guess would be the document when describing earnings allocations talks about participant accounts, not a forf. account. If a plan is silent the most common advice I see from attorneys is the plan admin has discretion. In every plan document it gives the administrator the ability to make reasonable interpretations of the plan and its document. So my guess is the plan administrator has discretion.

At risk of beating the dead horse... The securities law issue people have been talking about can't be stressed enough. Every time this idea comes up that is what makes it difficult and expensive.

Agree with the other two. The shares are titled to the trust not the person, the employee doesn't own the shares.

I am not related to these people so no conflict of interest here. If you really want to learn more these people's classes cost in the $400-$450 range for a 1 day class. If your company wants to strike out on your own it might pay to go. If in a city close enough you don't need to pay tons of travel costs it is a good investment. Sorry better link http://www.relius.net/Events/events.aspx?Seminar

I second my first comment and Lou's If you have handed them an election form they count. It doesn't not matter if they have money in the plan or not. This is a well settled issue. (Don't take that last comment as a knock, if you are just starting to look at it you wouldn't know that. What I am saying is there is no wiggle room or any way to do it right and not count anyone who is eligible to contribute regardless if they are doing so or not.) Edit: By the way another cheap way to stay under the 120 is to make sure you pay out your terminated w/ a balance as fast as you can. We have helped clients hold off an audit for 2-3 years by getting the terms paid out ASAP at times in the past.

I found some older threads, and I don't think there is a reason to think anything has changed but... 1) I have never seen an election form for a plan that allows one to take a lump sum distribution out of the plan talking about rolling the amount over to another qualified plan vs just an IRS if the person is terminated. I know it is rare for a terminated person to even have a diversification, but in this case they have the 55 and 10 yop before the plan allows them to take their money out as a terminated person. But there is no reason it can't be rolled to another unrelated qualified plan if so desired is there? 2) Can you write the ESOP diversification provisions so only employeed people can transfer the money to the employer's 401(k) plan? Or put another way can you force the terminated employee to take a distribution as their diversification? Once again I suspect they will want their money, but if they have been paid from the 401(k) plan it would be a pain if you were obligated to set up a new account. 3) Related to #2, it would be the ESOP's provisions that are change to make that restriction correct? Is where you can send your money a protected benefit? Thanks.

short answer is "yes" they count. long answer here is a quote from the instructions 1. Active participants (i.e., any individuals who are currently in employment covered by the plan and who are earning or retaining credited service under the plan). This includes any individuals who are eligible to elect to have the employer make payments under a Code section 401(k) qualified cash or deferred arrangement. Active participants also include any nonvested individuals who are earning or retaining credited service under the plan. This does not include (a) nonvested former employees who have incurred the break in service period specified in the plan or (b) former employees who have received a “cash-out” distribution or deemed distribution of their entire nonforfeitable accrued benefit. You will note all it takes is they are ELIGILBE TO ELECT. they don't have to make an election. As an aside, you may say being someone who works for a TPA I have a conflict of interest. You may want to rethink they whole doing it for "free" ourselves way of thinking. If you get this wrong the penalties and other problems will quickly cost you thousands (and it is plural) of dollars. And this is just one thing that could go wrong. edit small typos

IF the $44k is for TPA work that seems high, but one could only know for sure by seeing the service agreement. If the TPA is running a call center for example that could change the answer rather quickly. On the other hand if it really is testing, 5500, working with the auditors etc ... you could do much better with a fixed fee agreement. I would send out RFPs to a number of different service providers and see what comes back in terms of cost.

RMD issue aside for this conversation. If he really wants to do this and he really wants to minimize the tax withholding issue couldn’t he do the following? 1) Take the money from plan and roll it to an IRA 2) Take money from IRA, which doesn’t have 20% withholding 3) Roll back into IRA within 60 days, or maybe even the original plan (I would have to think about it, but it seems like it would be a conduit IRA to plan concept.) More paperwork as he has to open an IRA for the sole purpose of putting money in it for a day or two. Maybe he could use an existing IRA-- depends on exact facts. Obviously, he would need to take the RMD first with this set of actions.

These amendments aren't my strongest area of knowledge, but I thought there was a min. amount of time you had to keep the provision in place if you did this. If so, that would tend to make it a little more difficult to use every year wouldn't it?

When is the last time you got an opinion from the plan’s attorney regarding what “de minimis” is for 414(s) testing? I have seen plan attorneys who will defend a 5% point spread. This is more true if it seems like a onetime thing instead of a new trend. I have seen some that will defend the 5% spread the first time it happens and amend going forward. In short the IRS has never given good guidelines on what is a 414(s) failure, so one might want to see what everyone is willing to “risk” in this regard. On the other hand I have seen people insist the spread needs to be less than 1% point.

Austin; My understanding is "no". You in effective give them a lien on the account that is securing the loan. So you are borrowiong your own money back. But you can not withdrawal the money unless the loan is paid off. That is the reason the loan is so cheap. Like I said in my other reply I have a credit union that will give you a 5 year loan secured by a 5 year CD for the CD rate plus 2%. The only rational reason I can think one would do this is: 1) You don't want to pay the penalty to break a CD. 2) I guess I could give the bank a lien on one of my CDs to let one of my children to have a loan

You don't stay married for 25 years by responding and finding out if she is cute.

Got same e-mail from same person-- for what it is worth.

Bel I assumed you were the ESOP company not the TPA, but based on your comment on loan interest it appears you are the TPA. You might want to think about the NCEO webinars coming up on repurchase obligations. Of note the May 16 webinar. You will note the webinars cost $150 which seems high. That is the NCEOs way of getting your to join. You can have a single person join for $90/year and that person can go to the webinars for free. But the 16th one talks about way to fund the obligation, which is a fancy way of saying paying out distributions. This might help build your knowlege base. http://www.nceo.org/main/meetinglist.php/id/1

Both are allowable. Which is better is a more difficult question. You need to talk to someone who has some experience with the question and knows your plan. It would seem like your TPA ought to be able to give you better guidence. Here is the short of the two: Cont leave shares in plan: pros: keeps allowing current employees to increase their ownership, or if new employee start owning the company. If having broad based ownership is a major goal you want to do this. You are using pre-tax dollars to fund the payments as cont are deductable the are other pros but that is the big one and I want to keep it short cons the level of contribution tends to be dictated by people leaving not your business plan (althought there are way to manage this) By this I mean one year you might put 5% of comp into the plan next year 15% the next 1%. If the ESOP is an employee benefit you might want to better manage your costs for example Taking shares out of the plan pros: like any share buy back it will casue the share price to go up, although with less shares the total value will not change. You don't ever have to buy those shares from employees ever again. In theory the two methods should get the same repurchase obligation as one has high share price and the orther has more shares, the effects are the various people are different. If you go to ESOP conferences you can find people who have projected out the differences. cons on of the differences newer employees don't get shares, so the rising share price only benefits current shareholders, which is typically older employees. So the newer employees are working and not sharing in the benefit of the company profits You are using after tax dollars to fund distributions as this is not deductable You can only buy shares from the ESOP for so long. Someone has to own the company so you can't buy 100% of the shares. This is the very short version. I have a whole power point presetation I use for your clients as they enter this phase of the ESOP's life. You ESOP TPA should be able to help you get all the factors in front of you for an informed decision. Another thing to look at there are ways to use dividends to get funds into the plan and under the right conditions the dividends can be deductable which isn't normally the case with a C corp. You don't have to answer this, but have you looked into changing to an S corp ESOP?

I can't see any reason to NOT use prime. The loan is 100% secure. The plan can never have a loan loss from a plan loan. It is a risk free (from default) loan. You could make a case it is as safe as a gov't bond of the same length. In short a 1 year or less loan in my mind could reasonablely have a <1% rate like a T-bill. Make no mistake I am NOT saying do that because I think the rule makers don't buy my line of thinking, but to say you have to charge above prime makes no sense. The only risk in that loan is interest rate risk. The regulator's are just using their feelings instead of logic in my humble opinion. Edit is below Ignore the above. Prime is more likely. I just double checked my credit union. they will give you a loan secured with a savings account, which pays .2%, for 2.2% (ie rate plus 2%). That is below prime, but above T-bill rate. But prime plus is not what is commerical. But like I said the IRS makes the rules so do what is safe, not what is right in this case.

Thanks Tom learned something new today. I don't know if I have ever seen a case where the doc allowed it or the current year's forf weren't large enough. But in this case both appeared to happen.

bumping back towards the top.... any thoughts out there?

We have a PS plan. A person terminated was paid out fully a few years ago and was forf. They have been rehired and everyone agrees he could repay his distribution and get the amounts forf back when he was paid out restored. We use the Relius document. As I read the base document it looks like the restore should be funded in this order: 1) current forf 2) current plan earnings (this is a pooled asset plan) 3) current contributions Can you really use the earnings from a pooled plan? There aren't enough current forf. I always thought the employer just had to kick in more money to the plan if the current forf were not large enough. I am having a hard time wrapping my mind around the idea I can take earnings from the other people which is going to include people who did not benefit fromt he orginal forf.

Yes http://benefitslink.com/modperl/qa.cgi?db=...ibtax&id=19