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.

If the document clearly states that all distributions must be in the form of cash, why is this distribution being paid in the form of stock? You are correct, lump sum cash distributions are NOT eligible for NUA treatment, lump sum stock distributions ARE eligible for NUA treatment (regardless of whether the shares are retired by the company or repurchased by the ESOP's trust). As ESOP Guy stated, S corporation stock cost basis is adjusted for income before the NUA calculation can be finalized. But I think it is best to be clear on whether the distribution was in the form of stock or cash. The participant would have signed something "putting" his shares back to either the company or the trust in order to receive payment for the shares. Although the shares are only owned for "1 second," there would still be a put option by the participant. If there is no put option, then it seems more likely this was a cash distribution.

@AlbanyConsultant - I think you may be working yourself up a bit. To mirror what @Bri stated, the rate you use on the LID/LII is tied to the month-end, quarter-end or year-end for which you are preparing the statement. Since my plans are primarily ESOP and only provide an annual statement, right now I am preparing lots of December 31, 2021 statements. But even though it is now July 2022, I am still using the December 2021 interest rates for the LID because that is their plan's year end and that is the period end date for the statements. Based on what you are describing, that would be a total nightmare! So whether you don't get around to reviewing things right away or they sit on a client's desk longer than they should, it shouldn't cause you to have to re-run anything if you used the appropriate rate for the period end date you are reporting on the statement.

PenChecks will easily handle a distribution for a single participant... they don't so much care how many participants there are in the plan. They simply distribute funds per your direction. Funds can be transferred to PenChecks via wire or by writing a check. There are specific instructions for each method of sending funds to PenChecks. You may want to contact them directly. @ratherbereading provided you with a link in the first reply above.

I agree with others... PenChecks all the way. All you need to do is send them the money (and the other obvious details), they take care of everything else.

Per the EOB, "The indexed amount applies to any plan year beginning in that calendar year." I would say that you use the 2022 limits for determining distribution amounts to be paid in 2022.

Bob the Swimmer beat me to it... I was thinking the same thing. If your client could file the Form 5500 as a small plan filer for 2020 (with Schedule I), then they can once again file as a small plan filer for 2021 since the count at the BOY was 120 or less... hence, no audit requirement.

This. This. A thousand times, this.

I have a few clients in New York that will be taking advantage of the extended deadline, too. It is my understanding, per the IRS announcement, that you would still need to provide the relief information in Line D of the Form 5500 (although it does not specifically refer to how to report it on the Form 5500), something like this: Hope that helps!

Attached is the Reasonable Cause letter provided by Relius. Reasonable_Cause_Letter_for_Internal_Attachments.docx

It's a Relius issue. From Relius: FIS has identified an issue impacting a selection of Form 5500 series EFAST submissions for form year 2020. Form 5500 series filings with internal attachments created using Relius Government Forms (RGF) software templates did not include those attachments in the electronic submission to EFAST. Pursuant to direction from the US Department of Labor (DOL), FIS will resubmit the impacted Form 5500 series forms, with attachments, to EFAST on behalf of all impacted plans. The DOL has indicated that they intend to take no further action against plans impacted by the incomplete electronic submissions. FIS has identified an issue impacting a selection of Form 5500 series EFAST submissions for form year 2020 that included internal attachments. Internal attachments are attachments to the Form 5500 created using templates in RGF ASP. The most commonly generated internal attachments are the reasonable cause explanation for late filing, the schedule of assets, the weighted average retirement age, and the CSEC participating employer list. It was discovered that internal attachments were not included in the electronic data transmission to EFAST for 2020 form year submissions. This issue was remediated in RGF ASP on August 17, 2020 for Form 5500 and Form 5500-SF filings, and on August 19, 2021 for Form 5500-EZ filings. Any form year 2020 filings with internal attachments, filed prior to remediation would have been impacted. As providers of EFAST-certified software, FIS has worked with EFAST and the DOL to address this issue. FIS has provided the DOL with a list of all impacted EFAST submissions and the DOL has directed FIS to automatically resubmit the impacted forms with the attachments. FIS will resubmit the impacted filings the week of August 23, 2021. No action is required from your firm or plan sponsors for the resubmission process. The DOL recognizes that the plan sponsors and administrators signed the Form 5500 filings with the attachments and it was the data transmission process that excluded these internal attachments. Accordingly, the DOL informed FIS that they will take no actions against impacted plans based on the omitted attachments. The DOL will notify the IRS, and while unlikely, it is possible your clients may receive a notice from the IRS or DOL regarding the missing attachments. FIS has posted here a "reasonable cause" letter that can be used in response to any such inquiries. IMPORTANT: The DOL indicated the initial submissions (with the omitted attachments) cannot be deleted from EFAST, and once the filings are resubmitted, both filings will be visible on the EFAST website. Please contact Customer Care for a listing of your customers impacted by this issue, if needed. FIS will resubmit impacted Form 5500 filings via EFAST during the week of August 23, 2021. All Form 5500 EFAST transmissions submitted after August 19, 2021 will include the associated attachments.