casey72

Thanks, ESOP guy. They force people out and send distribution forms in advance that explicitly say they are entitled to distributions in CASH, and that such amount will be distributed/rolled over in the absence of direction from the participant. There is no mention of being entitled to a distribution in stock. It sounds like you agree with me that this is not okay and that the participants should at least be told in that set of paperwork that they have a right to a stock distribution. I think the recordkeeper thinks there's an exception for "small amounts" but I don't believe there's any basis for that. Thanks, Peter - unfortunately 409(h)(2)(B) doesn't apply to us. Ownership isn't restricted to employees/ESOP, and client is not an S corp.

ESOP plan document of a c-corp provides for automatic distributions under $1,000 and automatic rollovers between $1,000 and $5,000. Is anyone aware of any "small amount" exception (whether $5,000, $1,000, or $200) to the rule that ESOP participants are entitled to receive distributions their company stock account in stock? It appears that the company is making all automatic rollovers of amounts under $5,000 in cash, and all automatic distributions of amounts under $1,000 in cash, and is not offering any of these participants the right to elect stock. Recordkeeper indicates this is their common practice. I tend to think that when they send these people the notices they should at least be telling them they have the option of taking the distribution in stock... Plan document has a determination letter but it is vague on this point and doesn't explicitly say what the form of these automatic distributions/rollovers will be.

Appendix A, Sections .05(9)(a) and .05(10) of Rev. Proc. 2016-51 describe a safe harbor correction method for certain "Employee Elective Deferral Failures" -- which is defined as a failure to implement elective deferrals correctly. The safe harbor correction method provides that if an error lasted less than 3 months and proper/timely notification is given to the employee, the employer doesn't need to correct the missed elective deferrals. I'm comfortable that this would extend to a failure to implement a pre-tax or Roth contribution election, but I'm wondering if this treatment extends to catch-up contributions, too.

A related question - Any thoughts on what should happen if the **alternate payee** dies a few days before the order is formally entered by the court? Assuming that the plan was on notice of the pending DRO before the AP's death? The DOL regulations and case law on point largely deal with the participant's death before the order is entered or qualified.