ESOPMomma

https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/temporary-implementing-faqs-lifetime-income-interim-final-rule.pdf

Isn't it more than "one little letter?" What about "Phrenologists" vs "Phrenology?" I don't see the issue with filling out line 4 on the 5500... best to just do it and clear it all up.

Per the IRS: The IRS cannot cancel your EIN. Once an EIN has been assigned to a business entity, it becomes the permanent Federal taxpayer identification number for that entity. Regardless of whether the EIN is ever used to file Federal tax returns, the EIN is never reused or reassigned to another business entity. The EIN will still belong to the business entity and can be used at a later date, should the need arise. You (well, actually the plan sponsor) can always call the IRS to inquire that the EIN is still active: (800) 829-4933.

I don't have a cite, but ESOP Guy makes a great point that assets of the trust should be titled properly. Perhaps the bank just messed up when setting up the account. Have the plan sponsor provide you with the EIN of the entity that established the account. If it's the Trust's EIN, it should be a simple fix to get the name of the trust on the account which would just make things crystal clear (again I don't have a cite that it's required, but why not remove all doubt?). But if it's the Company's EIN and there is no reference to the trust or one of the trustees as the account holder, then I think it's less likely this would/could be considered a protected asset of the trust.

Exactly what I was thinking.

Individually designed ESOPs must be amended to allow the plan sponsor to wait until the value is known. As provided in the LRM-5: Definitions (a) "Annual Election Period" means the 90-day period following the end of each Plan Year in the Qualified Election Period. [Note to Reviewer: The Annual Election Period must begin on the first day following the end of each plan year in the Qualified Election Period, but the plan may provide that the Annual Election Period ends later than the 90th day following the end of each plan year in the Qualified Election Period. For example, a plan may provide that the Annual Election Period begins the day after the end of each plan year in the Qualified Election Period and ends 90 days after the date that the value of the shares subject to the diversification election is provided to the participant.] Without this language, or something similar to this, it is my understanding those preliminary notices are still required to be provided to participants eligible to diversify.

Agreed.

Yes... they should be.

Continuing with what Bill Presson pointed out, perhaps a more clear way to think about it, and what you are required to report on the Form 945, is when the tax liability was created. Although the payment of the tax may not be due until the 15th of the month following the month of the distribution, the tax liability was created in the month of the distribution. It can be confusing when you are crossing over into a different year (e.g. December distribution, January tax payment), but in your situation it seems clear to me that you would prepare a Form 945 for the 2020 year, because that is the year the tax liability was created. Hopefully when the accountant paid the taxes on January 8th, 2021, he/she/they indicated it was for the 2020 tax year and not the 2021 tax year. Best of luck to you.

It does not matter 5500 or 5500-SF. All filings must have a valid signature. As long the page is legible, it doesn't matter if the page is a "fax". Please note that the EFAST instructions include the following: Note: You must keep a manually signed copy of the Form 5500/Form 5500-SF (whether the records are maintained as paper records or electronically in accordance with the Department of Labor’s regulations) as part of the plan’s records. We advise clients to keep the "wet" signed Form in their records for a minimum of 6 years.

Seems to me you need to find out the REASON those 2 NHCEs are leaving. The crux of determining a partial plan termination is whether the terminations are employer-initiated. Based on the math you've provided, if these 2 NHCEs were fired, you have a PPT on your hands. In that case, the hours they've worked are not a factor as they become 100% vested regardless. All PPT determinations are facts & circumstances, so it may be advisable to get a legal opinion.

To David Rigby's point, if the buyer is requiring the termination of the plan BEFORE the effective date of the sale, wouldn't that then mean 11/15/2020, not 12/15/2020???

Was the loan already in default prior to March 27, 2020?

Not sure of the timeline you are looking to do this, but it takes time. Perhaps you will find this link helpful. Note #5 on the list. https://rady.ucsd.edu/centers/beyster/media/newsletter/2014/winter/irc-section-1042/index.html

I think this has always been the guidance for partial plan terminations, and the IRS is just clarifying its position related to COVID-19 layoffs. For any of my plans that have employer-initiated terminations during the plan year who then rehire the participant(s) before the end of that same plan year, I do not count them as an employer-initiated termination because, well, they were REHIRED. Your question did not seem to ask about distributions and any possible related forfeitures, and since Bird already provided some thoughts on that, I will not address those items.

I would check the special extension box. Here is a brief thread on how to complete it.

With a deemed distribution, the participant is taxed as if he received a distribution, but he still owes the plan the borrowed proceeds because the transaction was a loan, not an actual distribution. There is no withholding (which is obvious since this was initially a loan, not a distribution). A deemed distribution under §72(p) is reported on Form 1099-R, as if the plan actually made a distribution. The distribution is coded in Box 7 as either a regular distribution, or a distribution that is a premature distribution, depending on whether the participant is under age 59½.. The 1997 Form 1099-R introduced code “L” which is also included in Box 7 to identify the distribution as a deemed distribution under §72(p). The distribution is reported to the IRS like other distributions, and any later offset of the defaulted loan (including accrued interest) is not reported again at the time of the offset. When the offset later occurs, the account balance will be reduced at that time by treating the offset as an actual distribution. When the plan deems the loan to be a taxable distribution under §72(p), the deemed distribution itself does not trigger basis in the participant's account. It is only when repayments are made on the previously-taxed loan that basis is generated. This coordinates with the reporting rules when the loan receivable is offset, because the unpaid loan balance that was deemed distributed is not reported again at the time of the offset. Since the deemed distribution treatment under §72(p) is solely a tax rule, and is not treated as an actual distribution for other purposes, the deemed distribution does not affect the participant's continued obligation to repay the loan. The loan obligation is not extinguished until the loan is repaid, either by the participant through a resumption of loan payments, or by offset against the participant's accrued benefit. Here is an example of how this works: In 2013, Rita receives a participant loan in the amount of $15,000. Before the loan is fully repaid, Rita defaulted on the loan, resulting in a deemed distribution under §72(p) of $3,000. Rita resumes payments on the loan sometime after the deemed distribution. Her payments following the deemed distribution totalled $3,800, which includes the $3,000 default amount plus interest included in her remaining loan payments. Rita has $3,800 of basis in the plan attributable to her repayment of the previously-taxed portion of the loan. On February 1, 2019, Rita terminates employment and is paid a lump sum distribution of her vested account balance. The amount distributed is $90,000. The taxable portion of Rita's distribution is $86,200, because the basis of $3,800 generated from the repayments on the previously-taxed loan is not includible in gross income under the basis recovery rules. Also note that since the taxable amount of $86,200 is part of an eligible rollover distribution, it is subject to the 20% withholding rules to the extent it is not directly rolled over.

Wait... what? Folks are attaching the 8955-SSA to their Form 5500 filing? Yikes.

Actually, I learned something through all of this. The denominator for HCEs when there are warrants is similar to determining DQP in the 409(p) test (you ignore the warrants held by other shareholders). If there are 3 participants with warrants (each has 58,333.33 to total 175,000) and the ESOP has 1,000,000 shares, the denominator for each participant would be 1,058,333.33 (not 1,000,000 or 1,175,000 as I queried above). So as it turns out, my 3 guys are all considered HCEs because they own more than 5% (58,333.333 / 1,058,333.33 = 5.51%). SARS are not part of the 5% determination. I think you are wise to lean on the attorney when it's questionable! When I first responded to your post, I forgot to acknowledge how old your OP was! Thanks so much for sharing.

A stock warrant is simply the right to purchase shares of a stock at a certain price. Warrants are good for a fixed period of time, but they're worthless once they expire. You're not locked in when you buy a warrant. You're always free to decide that you don't want to buy the underlying security. Per IRC Section 318(a)(4), If any person has an option to acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an option, and each one of a series of such options, shall be considered as an option to acquire such stock. In determining 5%, I'm curious what you are using as the denominator. If the ESOP owns 100%, let's say 1,000,000 shares, and there are warrants totaling 175,000 (synthetic equity) shares, is your denominator 1,000,000 or 1,175,000?

You have to really drill down in Sec.2203 of the CARES Act, but perhaps this summary will help? https://www.morganlewis.com/pubs/cares-act-brings-compensation-benefits-and-payroll-tax-changes-cv19-lf?p=1

The mandatory 20% federal withholding from qualified plan distributions would continue apply, however, with regard to the RMD amount that is now waived for 2020, it is my understanding that distribution amount is NOT subject to the mandatory 20% withholding requirement, even though it is eligible for rollover.

S.3527 is still only proposed. I don't believe anything has been finalized yet. Several of my clients already paid out the RMDs that would have been due by 4/1.

Just curious how you would force payments to a beneficiary without obtaining their SSN for 1099-R reporting. Sounds like, in this case, neither of these potential beneficiaries would be willing to share that information.