jpod

I haven't read the entire thread but is there some authority confirming that there is no 72(p) default here? That doesn't sound right to me because the lender is the plan, not the employer.

Flybohjohn, I was talking about the rationale behind the requirement that the plan be communicated to employees before the end of the year.

If the document says that the profit sharing contribution is allocated to participants in a certain way regardless of what division they work for, then that's what must be done. If one division "contributes" (and I use that word loosely) zero, then that merely reduces the contribution but the employees of that division still get their allocable share of the contribution. Whether or not it is too late in the current plan year to amend the plan to accommodate the client's goals for the current plan year is a separate issue which it and you may wish to consider. Certainly it could be amended for future plan years.

Agree with the "flung down and trampled" observation. I'm wondering if as part of their training IRS EP agents are even informed of this position any more. Not sure about the plain stupid comment because I don't remember what the rationale was for the IRS position.

I agree, but I am jumping in only to mention another point. In addition to the plan and trust having to be in existence before the end of the year, I think the old IRS guidance that says that the plan must also be communicated to employees before the end of year is still in effect. However, I am happy to be proven wrong if I am wrong.

From the employer's perspective most likely it was also a prohibited transaction.

Sorry. [If the former,] THERE WAS NO DEFAULT.

Is this a situation in which there was simply bad reporting or were the semi-monthly loan repayments not deposited to the Plan? If the former,

While I not a big fan of many of the recent tax changes or to say the least the state of affairs in DC these days, I think the time has come to increase the required beginning date. When the 70-1/2 concept first made it into the law (1962?), that was WAY beyond the average retirement age. Now, not so much. Unfortunately I don't see that as one of the items which the EO touches on, nor could it.

No, I meant "construct." I was referring to the "construct" whereby an ESOP is the 100% owner of an s corp. Perhaps I should have said "scenario," or not used any shorthand at all. My apologies.

chc93, good point. But, what if the account had grown to $250,001? Clearly the divisor for the following year is not negative 0.4. I don't have the curiosity to look at the regulations to see if this is addressed, maybe someone else does.

Absolutely the currency for SARs can be stock, but that kinda goes against the 100% sub s construct so I have never seen it done there.

I agree that the participant did not have to repay the loan, but since he did he's stuck. Hope I can remember this lesson so I can give a proactive warning in case it ever comes up in my practice.

ESOP Guy's logic is unassailable. I would be surprised if there isn't something in the regulations to confirm that. If not, applied literally the RMD for 2018 would be only $100,000, and if you invested the $5,000 in a money market or a savings account or a CD or something else guaranteed not to lose principal then you would never have to close the account.

I think the DOL guidance is liberal enough that you could give a portion of the money to just the employees who were participants on the date the demutualization proceeds were distributed by the insurance company based on some reasonable formula that reflects their level of contributions vs. employer contributions. (That's just a suggestion but there may be other simple approaches that would work.) Of course, you could use that money to pay the expenses of searching for these folks, performing the allocations and otherwise wrapping this up (including counsel fees). I don't think there would be any "reversion" taxes, but the portion attributable to employee contributions is in the DOL's view a "plan asset" so if the employer just keeps it that would be a Title I fiduciary breach and a PT. Some might say "just give it to charity," but I don't think that eliminates the Title I exposure.

The SARs may be considered part of a pension plan as defined in Title I of ERISA depending upon the structure, in which case that plan would have to be limited to a top hat group of employees, but it could never be a plan subject to IRC 401(a) qualification rules. The every-day ESOP practitioners on this board may care to explain in more detail, but the SARs will need to be taken into account as synthetic equity for purposes of compliance with IRC Section 409(p).

Larry Starr: Nice try to obfuscate the fact that you said that the exemption applies when clearly it does not. You took the bait and we pulled you in the boat. Hope your clients are not the victim of such mistakes.

Also, Ray, even if she is not a dp by reason of being a beneficiary, if she is a relative of the fiduciary making the decision on behalf of the plan she would be a dp.

Larry Starr, see Part II(a) of the exemption. Ray, is a beneficiary not a disqualified person? If not then you are probably right about there being no pt requiring an exemption.

There is nothing in the law or the regulations to suggest that the lack of notice is relevant, and I wouldn't expect that there is any case law supporting the notion that the lack of notice changes anything. The plan administrator/sponsor or whoever else was responsible for this has a big problem it brought on itself by not undertaking appropriate due diligence. Like, for example, what did the death certificate say about marital status (or was a death certificate not even requested)? Even if the death certificate was erroneous in that regard, it wouldn't change the fact that the surviving spouse is entitled to the money. Depending upon the facts the relevant plan fiduciary may be shielded from liability for breach of fiduciary duty, but that doesn't change the fact that the surviving spouse is the beneficiary.

I'm not so sure the exemption is available in this situation.

I was under the impression that the LLC would not be engaged in a trade or business (i.e., merely investments), so as long as there is no leveraging there would be no UBTI.

Lawrence, thanks for the citation. Unfortunately, the facts of that PTE are way different than mine. In that case, because of the plan asset rule, the LLC was ignored and therefore the guarantee was deemed to be a direct extension of credit between the DP and the Plan (rather than an indirect extension of credit).

Thanks Larry Starr for the suggestion. I consider myself to be somewhat competent counsel, but as we here often do I was turning to this Board to see if someone who does ROBS work all the time had some inside baseball knowledge about the Peek case and its application to ROBS.

In a typical leveraged esop situation there is a statutory exemption unique to esops that would enable a guarantee to be given if it would otherwise be a pt.