Belgarath

Thanks to you both. Question - how do these SAR's work with regards to stock - by that I mean - suppose the S-corp has 100,000 shares of stock. All are currently owned by the leveraged ESOP - either already allocated or in suspense to be released each year as the loan is repaid. So if a SAR's plan is instituted, does that mean more stock is going to be issued at a future date? Or is it essentially a cash bonus (paid at whatever time or times or conditions specified in the SAR's agreement) based upon the stock price of existing stock already in the ESOP? Etc.? Assuming it is a cash bonus, and not an actual stock purchase right, then it still counts as synthetic equity, but may or may not be includible in current W-2 income, as it might essentially deferred compensation? All this will go before an ESOP attorney anyway, but I'd like to have a reasonable working understanding of it. I can see I'll have to do some research, but in the meantime I greatly appreciate your expertise!

So suppose a S-corporation has an ESOP that owns 100% of the stock. The employer is considering implementing a "SAR's" plan. Does this SAR's plan have any impact on the ESOP? What little I know about a SAR's plan is that under some circumstances, it MAY(?) be possible that they would be considered a retirement plan, and therefore issues with 404, 415, etc.? Let's assume for the moment that this isn't a problem. Seems like this could be considered compensation, which might indirectly affect the ESOP? I guess what I'm getting at is that it doesn't seem like there is a DIRECT effect on the ESOP, but that depending upon the status as to whether it represents currently taxable W-2 income or not could have indirect effects? Would love to hear any thoughts - I'm frankly not familiar with Stock Appreciation Rights programs. Thanks.

Yes, if the property is unencumbered, and if the contribution is purely discretionary. If property is encumbered, then the IRS treats it as a sale, and therefore a PT. You generally can't contribute property to satisfy a funding obligation (i.e. for a pension plan). There are some exceptions under the PT rules that would allow non-cash contributions to a pension plan in certain circumstances, but I try to avoid looking at that stuff unless absolutely necessary...and would refer them to counsel anyway!

Ditto for me. Gracias!

Yes, that's precisely what I see. Liked it better the old way.

Atavism at its finest!

What district are you in? We, thankfully, have not yet seen any uptick in audits. Hope it stays that way!

As far as I know the term "governmental" entity has not been clearly defined by the IRS or in ERISA. The IRS issued proposed regulations, and this was supposedly going to be coordinated with IRS, DOL, and PBGC so there would be consistency, but I'm not aware that they have been finalized. If you have access to the EOB, Sal has a great discussion of this. In the meantime, this might help. https://www.federalregister.gov/documents/2011/11/08/2011-28853/determination-of-governmental-plan-status

Awful. Absolutely awful. I hope no one apes your proposal method.

FWIW, FIS docs do have such language.

Yes, I don't think I'm qualified to be considered a higher primate. But tell me this - did you marry the gorilla your dreams?

Fascinating! Thanks Tom. This is WAY more interesting than nondiscrimination testing...

Agree.

IF the only contributions to the plan are deferrals and safe harbor match, then the plan is deemed not to be top heavy, so no TH contributions whatsoever. If other contributions are made, then you lose the TH exemption, and if plan top heavy, depends upon your document. While most exclude Keys from receiving TH, some provide for TH for everyone. So if TH becomes applicable, check your document (or check it now, and amend if necessary to prevent TH to Keys, if that is what you want to do).

The match is dollar for dollar up to 3% of calendar year income. The 401(a)(17) compensation limit doesn't apply for purposes of the MATCHING contribution. If 'twere me, I'd wait and do a true-up at the end of the year once final comp is known. There's no requirement to deposit it per payroll - that's just an accounting/bookkeeping/payroll convenience/procedure.

I enjoy hearing vacation reports - at least vicariously enjoying the vacations of others is better than nothing! If I'm not interested, I don't have to read it...

I respectfully disagree with your analysis of 1.402(c)(a)(7)(a). A distribution is in fact required for the distribution calendar year. The fact that you can delay it until April first of the following year does not alter that fact. The April 1 distribution taken in the following year is the required distribution for the PRIOR year. then you take the second distribution - the one for the current year - be December 31. IMHO you are overthinking this.

Hi Peter - here you go. https://www.irs.gov/pub/irs-utl/list_erpas.pdf

They actually have a listing. Let me see if I can find it for you.

Tough question. Presumably this is for NHC's? If so, hard to imagine that the IRS would argue with correcting as PP proposes above. I'm not certain it is REQUIRED. However, I, too, would probably recommend the make-up.

I'd add that 457(e)(16)(A) dealing with rollovers refers specifically to entities described in subsection (e)(1)A), which is of course governmental plans. (e)(1)(B) is the tax-exempt organizations, which are not named under (e)(16)(A). In case you want to see the actual citation- (16) Rollover amounts (A) General ruleIn the case of an eligible deferred compensation plan established and maintained by an employer described in subsection (e)(1)(A), if— (i) any portion of the balance to the credit of an employee in such plan is paid to such employee in an eligible rollover distribution (within the meaning of section 402(c)(4)), (ii) the employee transfers any portion of the property such employee receives in such distribution to an eligible retirement plan described in section 402(c)(8)(B), and (iii) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed, then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid. (B) Certain rules made applicable The rules of paragraphs (2) through (7), (9), and (11) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A). (C) Reporting Rollovers under this paragraph shall be reported to the Secretary in the same manner as rollovers from qualified retirement plans (as defined in section 4974(c)).

Yes, PTE 92-6.

I don't think you are missing anything. Q&A-1(b) very specifically says, "If an employee's required beginning date is April 1 of the calendar year following the calendar year in which the employee retires, the employee's first distribution calendar year is the calendar year in which the employee retires." Seems pretty clear.

How does that matter? Unless I'm missing something (quite possible) there still needs to be at least 10% ownership (direct or deemed) in the B-org by one or more HCE's in the FSO and/or its A-Orgs. That doesn't seem to be the situation being discussed?

This is probably a stupid question, but have they asked the broker if, for purposes of the $500,000 minimum that the broker requires, that the separate investments could be "aggregated" solely for purposes of satisfying that minimum requirement? I assume this has already been explored and the answer was "no" but I just thought I'd ask...