Belgarath

Thank you. The fog has cleared, and the cramp has disappeared. Help yourself to some Who Hash and some rare Who Roast Beast, and put it on my tab.

Having a brain cramp. Plan is rate group testing on an allocations basis. 2 HC's - wife makes all the money, and wants to max out. (cross testing doesn't work, 'cause owners are way younger than all the employees - only 4 employees anyway...) The husband takes a nominal salary, defers the max, but is excluded from all other employer contributions. When performing the Average Benefits Percentage Test, do his deferrals get added back in? Common sense says no, but as I said, brain cramp. Thanks.

Yes, but you have the strength of 10 Grinches, plus 2.

Thanks Tom. And after we had already sent the letter to all our clients updating the 2018 limits. Sigh...

Just confirming something: You DO need a PTIN for a 5330 or 945 if you are being paid (directly, or indirectly as part of a general administrative fee) but you DON'T need one for a 2848 if you are an ERPA, right? This question seems to pop up now and then. Thanks.

I see the Grinch has returned! Thanks Tom - that is sort of what I was thinking. Have you ever seen or heard of this being raised by the IRS in a real-life situation? I never have, although I'm not certain how often it would really be a serious problem anyway.

The regulations give mathematical certainty as to what constitutes an acceptable "range." However, there is that annoying caveat that says as long as the allocation/accrual rates of the HCE's within the range cannot generally be significantly higher than the allocation/accrual rates of the NHCE's within the range. I've always found this troubling. What is "significantly higher" (especially since the range is limited anyway) - is there any guidance on this? Thanks. Editing typo...

Social (in)Security? My assumptions are that I'll get just enough to live in a yurt and eat pine needles. Maybe once in a while my kids will drop off their compost so I can make a salad or a soup out of it. But remember, Washington is going to give tax cuts to us "hard working Americans" so we'll be rolling in money shortly...

Correct.

What Mike said.

You have the basic idea, but as ESOP notes, it is the details where you need to be careful, and which makes it impossible for us here to answer your question as a yes or no. Many people misunderstand the 20% - the 20% is not the TAX, per se, but is simply WITHHOLDING. So when you ultimately file your tax return, this 20% withholding will either mean you get a bigger refund, or owe less. The 20% withholding doesn't exist in a vacuum.

True...

Is it really a related group problem? There's no cross-ownership whatsoever (or won't be) - right? Doesn't sound like it would be a management function ASG either.

As I read Mike's post, I don't think that is what he said.

FWIW, experienced ERISA and ESOP specialist legal counsel is involved, and apparently has no problem with it. Counsel also said that they would NOT be allocating gain in the ESOP plan, (if any) to the selling shareholders upon the subsequent sale of the shares that the ESOP obtains from the selling shareholders.

Jim - I don't know what you have read, and the fact that any other 401(k) plan you have seen allows catch-ups is immaterial. Most plans these days do in fact allow catch-up contributions, but the simple fact is that they are not REQUIRED to allow them. IRC 414(v) was added to the IRC by EGTRRA. It PERMITS a plan to offer catch-ups - it does not REQUIRE it. Now, IF the plan offers catch-ups, which yours does, then there are requirements that must be followed, and the folks here have already provided you with appropriate commentary on that issue, so you should be able to now discuss this with the benefits/human resources folks at your wife's employer. My experience with ADP is that their compliance knowledge/procedures is, shall we say, less than stellar, and I expect the benefits department at the employer should be able to clear this up. Good luck!

Jim - to answer your other question, yes, the plan is allowed by law to set a maximum percentage (in your case 15%, but it could be a different percentage) and a plan is not REQUIRED to allow catch-up deferrals.

Unless it was offset. Could have been...

And just for additional EOB reference, which will also give you an example, the 2017 EOB also says, in Chapter 11, page 11.687, that it should be possible for an employee to designate whether the required minimum distribution being made for a calendar year is attributable to the Roth portion or the non-Roth portion of his/her account balance.

A question came up re a post termination adoption. The plan already terminated in June (note that this is AFTER the date when pre-approved language became available). Let's further assume that the document, done in 2009 as so many were, has only had a HEART/WRERA amendment done - nothing else. Any reason not to adopt an updated document post termination, retroactive to 2010? Curious as to opinions on this.

But, do YOU know who you are? Are you actually Jason Bourne?

Thanks. It is my understanding that the 4978 10% excise tax still applies in this situation, when the ESOP immediately turns around and sells the shares - agree? I'm still trying to nail down whether any of the GAIN on the resale of the stock can be allocated to the original selling shareholders?

For the first year of a new profit sharing plan, you must test for top heavy on an accrual basis.

Thank you. I have a little more information now. The ESOP will evidently use short term promissory notes to finance the purchase of the shares from the current owners. Essentially on the same day, the new buyer will pay cash for 100% of the shares - this cash will be used by the ESOP to repay the short term promissory notes. There will be an independent Trustee for the ESOP in this transaction. As currently described, the shares will be purchased from the current owners for a certain price "X." The new buyer will purchase all shares from the ESOP (100% of the shares of the corporation) for price "Y" which will be higher than "X" so there will be "gain" to be allocated. Plan will be terminated as soon as buyer has ownership of the corporation. Are the selling shareholders allowed to receive an allocation of this gain if they are doing a Section 1042 rollover of their sale proceeds? Does any of this clarify/change/confuse anything?

Let me state at the outset that ERISA counsel will be involved. That having been said, curious as to thoughts on the following from those who deal with ESOPS. So, you have a C-corp that is partially owned (about 24%) by an ESOP (no outstanding loan). The owners have an idea that they want to sell their remaining stock to the ESOP, which will own 100% now, and a new unrelated buyer will then purchase 100% of the corporation from the ESOP. Apparently they envision this being sort of one immediate transaction such that the ESOP will not need to borrow any funds to purchase their stock. They are also, by the way, current participants in the ESOP. First, is such a transaction possible/reasonable? I'd typically expect that the ESOP would actually have to borrow the funds, then pay off the lender as soon as the shares are sold to the new buyer and the ESOP is now all cash. But maybe what they envision is a common transaction - sort of "circular" for lack of a better term? Also, even assuming such a transaction is otherwise viable, how the heck could you ALLOCATE that much money? It doesn't seem reasonable that this could all be simply classified as "gain." Also, (not being an ESOP expert, by any stretch!) I have a faint memory that IF a Section 1042 "rollover" is contemplated, that the selling shareholders (who are also participants) cannot receive any allocation attributable to the employer securities that were just sold to the ESOP? That this would be "double dipping" - and that therefore all such sale proceeds could only be allocated to OTHER participants? Any other special pitfalls, or thoughts about this?