ESOPMomma

www.employeelocator.com

The SPD provided DOES STATE there is a 6-year delay for vested balances in excess of $5k for terminations due to reasons other than age 59½, death or disability.

You are correct. As long as the shares remain in the ESOP (are recycled amongst participant accounts and are not redeemed via distribution then re-contributed), they carry the same cost basis as the original acquisition.

1 - as others have already addressed proficiently, yes they check but they may not press the termination. 2 - yes... I actually had a 100% ESOP established in 2021, company was acquired in 2023 and plan terminated... 2½ years for an ESOP is crazy short, but the sale was in the best interest of the shareholders (the plan participants). We will have a few more years of administration waiting for the FDL from the IRS and for the escrow hold out, but selling your business can most certainly fall under the change in ownership category. 3 - the 5310 is not required to terminate the plan. It's only necessary if you want the IRS' blessing on the termination of the plan. In an acquisition situation like I describe above, the buyer may REQUIRE the plan sponsor request the FDL so they know the plan has no issues, or there may be language written into the transaction that if the IRS finds errors requiring correction the onus is on the company being acquired to absorb the cost for corrections.

We have, too... our client has an ESOP and a 401(k)... the erroneous SSA penalty was $20k for one plan and $13k for the other. On a $77k refund, the IRS was only going to refund the difference of $44k... pretty significant chunk. To boot, the client responded to the initial error for both plans back in August and the IRS had STILL not fixed it when the client got their refund notice in November. I recommended my client call the IRS and sit on hold for however long is necessary to set them straight, since sending written communication did no good whatsoever. Such a waste of time.

Thank you, Lois. I changed my search and the article populated for me. I tried to update my post but couldn't find it (haha).

Recall back in August the erroneous 8955-SSA penalty letters sent by the IRS. Both ftwilliam and Relius (perhaps others, too) provided template language for plan sponsors to use in requesting the IRS abate the penalties as their Forms 8955-SSA were timely filed (or didn't file). My client just forwarded me a notice CP138 for their corporate 1120 tax return that they are due a refund, but their refund has been reduced for the erroneous penalties! It's as though the IRS completely ignored their own mistake and my client's rebuttal to their mistake. Has anyone else seen this? In searching the internet this morning I cannot find anything. Many thanks in advance for your thoughts.

Terminated participants in a prior year with no beginning balance as of the current year are NOT participants as of the beginning of the current year. In the situation you describe, as I understand it, 2021 terms with no balance as of 1/1/2022 are not participants as of 1/1/2022. Seems to me Datair is counting them incorrectly. The part that throws me a bit is your comment "received lost earnings within the year." I assume you are referring to 2021 activity... with no beginning balance as of 1/1/22 I don't see how they could have shared in any earnings/losses in 2022, as there is $0 basis.

And... one of our clients that received a penalty letter didn't even file a 2022 Form 8955-SSA, nor were they required to... very bizarre. The notices our clients received did not explain how the IRS arrived at the penalty amount, it was just a flat amount.

We have had clients inform us they received penalty letters from the IRS for their 2022 Form 8955-SSA. The Form was filed by our office timely and accurately. We received notification from ftwilliam.com today the IRS goofed. Below is the text from the ftwilliam.com email: Dear ftwilliam.com Customer: We recently contacted the IRS due to several customers receiving erroneous penalty notices for filing late or incomplete Form 8955-SSA for the 2022 tax period. If users receive this letter, and the batch was filed timely, IRS representatives have advised that the Plan Sponsor request an abatement of penalties. If the batch filing shows ‘Completed’ with a timestamp prior to the deadline within the ftwilliam.com software, the IRS FIRE records indicate the filings were completed timely and processed accordingly. Plans Sponsors are advised to contact the IRS at the number on the CP283C notice (877.829.5500) or fax a signed letter for request of abatement as well as the IRS notice to ATTN: Employee Plan Account at 877.792.2864. We have included a sample fax coversheet letter to provide Plan Sponsors to send the IRS at the following Link: Request for Penalty Abatement Under Reasonable Cause Please note the letter needs to be signed (including the signer’s title), and dated by the Plan Sponsor before faxing to the IRS. Thank you for using ftwilliam.com, a product suite of Wolters Kluwer Legal & Regulatory U.S. If you have any questions or concerns, please feel free to contact us at 800.596.0714 or via email at support@ftwilliam.com.

I LOVE ESOPs! You can send them all my way. Paul's comments are spot on.

I think (a) is the correct option here. ESOP diversification IS a distribution. Offering participants the convenience of a direct rollover by way of transfer to the employer's 401(k) plan doesn't change the fact that it was a distribution.

Degrand is spot on. If the plan sponsor does not want former participants to share in the increase or decrease in the value of the company's stock, then it must liquidate those shares via segregation (replacing the shares at the most recent FMV) with cash assets that are prudently invested. As long as a participant has shares of stock in their ESOP account, those shares must be subject to the required valuation process.

Nate S has provided great guidance with regard to who truly is an "officer." But in an ESOP company, the shares in a participant's ESOP account are NOT direct ownership. In a 100% ESOP owned company, there could not be any "owners" other than the ESOP. So you can essentially disregard the ownership test in determining Key Employees... you would simply base it on the officer and compensation thresholds. Hope that helps.

Agree with Lou S. here... new rules did not change RBD... which would be 4/1/24 for the situation outlined in OP.