Griswold

never a dull moment!

FWIW, I don't think it matters; I don't see any issues either way. As long as the loan is at least as favorable as the ESOP could have gotten in an arms length negotiation, anyone can lend to the ESOP. That's my 2 cents, anyway.

Agree with David. This strikes me as more of a question for the labor and employment attorney than the ERISA attorney.

Last I checked, a foreign order would not be a QDRO as it would not be issued by a state court as set forth in ERISA 206 (d)(3)(b)(ii)(II), but it's been a while since I looked into the issue...

I agree with what was said above. It's a little unclear what happened as you describe it, but it does seem odd that there was no pass through voting, or at least some documentation as to the decision on pass through voting. It never hurts to ask. You could go to the trustee with these questions, or sometimes there's an internal ESOP committee. Often the CFO is very involved in ESOP issues. Or the company's general counsel or outside counsel...

If you terminate something, you can't merge it. You can terminate one and put all the participants in the other plan, or you can just merge the plans--probably on 12/31 to avoid costs.

I'm not aware of any ERISA specific issues, but PTOs bring up a host of tax issues. There was a good article back in 2013 called "Leave and Learn" by Yelena Gray in the Tax Management Compensation Planning Journal that you can google. Not exactly focused on incentive awards, but will get you thinking about the important topics like constructive receipt.

Who are you? One of the spouses?

IIRC, treasury stock is not considered outstanding. So, I think this pushes your individual into HCE status in your example.

Can't seem to find it anywhere. TYIA!

IRC 410(a)(3)(A).

IRC 414(a) speaks of "in any case in which the employer maintains the plan of a predecessor employer..." so at the very least the Code contemplates the scenario.

Check out IRC 406.

GMK - I've seen it done, though I don't know of the authority for it off the top of my head.

If the stock is put back to the company you might be able to spread the payments out over five years.

Just to add, another reason for the exception--often participants want to roll their allocated shares into an IRA. However, IRAs are not eligible to own shares of an S-Corp. and so, such a rollover might jeopardize the S election.

I've come across the issue before, but our analysis was based entirely on the terms found within the plan. If I recall correctly it had to do with whether or not the participant was still in "covered employment" as defined in the corbel plan.

Mike -- You're right. When someone says "the constructive ownership rules" I generally assume that they're talking about IRC 318--which is where you figure out familial relationships for ownership purposes. But those rules only apply to 414(m)--affiliated service groups--and that code section is (conspicuously) absent from the PBGC regulation. Like I said--those rules can be tricky!

For purposes of determining a majority owner, the constructive ownership rules of 414(b) and © apply. PBGC Reg. 4041.2. Those can be some tricky rules. Probably time to call a lawyer.

I would definitely wait for a new order and make sure it's qualified.

Based on the definition in 409(p)(6)©, my best guess is, no, don't use them. "The term "synthetic equity" means any stock option, warrant, restricted stock, deferred issuance stock right, or similar interest or right that gives the holder the right to acquire or receive stock of the S Corporation in the future. Except to the extent provided in regulations, synthetic equity also includes a stock appreciation right, phantom stock unit, or similar right to a future cash payment based on the value of such stock or appreciation in value." Profits Interest are something you find in partnerships--instead of a capital interest, you get a profits interest. So, instead of liquidation rights, you get a potential distribution if and when the partnership gets income. So, conceptually, I don't think it makes sense to include them.

There have been rumblings that more FDL guidance is in the works. See Tax Notes May 15, 2016 p. 856. Might be good to get one last one before they change everything, and be grandfathered in, as it were.

Thanks, ASITD. I suppose I should have said that we're approaching the fiscal year end for the company and someone is dead set on doing it this way. (He might be just using it to impose some sort of deadline to get the transaction going.) But, I agree with you, the short year approach makes more sense.

A C-corp. is thinking about becoming an ESOP. The selling owner wants to take advantage of the 1042 election. The company would then want to elect becoming an S-Corp. Would electing to do so retroactively within the 2.5 month period after the beginning of the fiscal year jeopardize the 1042 election? Or do you just make sure the sale occurs, say, on the last day of the year when it's definitely a C-corp?

Does the plan allow for loans? You'd probably have to take a loan from the plan first.