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  1. Group: I have a potential client who owns a company that has sponsored an ESOP some years ago. This has become costly to the client and too many regulatory hurdles in their opinion. They'd like to terminate at end of this year (12/31/18). The client is under a TEGE audit. Can the client terminate the plan while under audit? The audit years in question do not relate to 2018. Thoughts and comments appreciated.
  2. This question relates to terminating a vanilla C-Corp employee stock bonus plan ("ESBP" not and ESOP) that is almost entirely invested in closely held employer stock. A 5310 application has been pending with the IRS since Sept. The company wants to give the participants the choice they have had in the past (as called for under the plan) of taking their plan termination distributions in cash or in stock. The Company would like to redeem shares from the Plan to raise whatever cash is needed to meet the participant elections. There are non-employee shareholders, so can't compel sale of the stock. Are they required to not only get an independent valuation but also to appoint an independent trustee to negotiate the redemption price and make a good faith determination that the plan is being treated fairly and receiving "adequate consideration" (not less than fair market value) for its shares? Is this to be AS OF THE DATE OF THE REDEMPTION SALE? If so CAN THE REDEMPTION SALE TAKE PLACE BEFORE THE DATE OF DISTRIBUTION? What are the mechanics of doing that? Can the participants make their election now but advise them if they elect cash their shares will be redeemed at the fair market value of the stock on the date of actual share redemption as determined by the independent trustee and an independent valuation?
  3. 2018-7-22 the ESOP RMD Question The client is a participant (employee) in a ESOP which holds 100% of the "employer securities" of the Plan Sponsor corporation (employer). A. The client is almost 70 years of age, is currently employed and plans on continuing to work for the corporation until age 75 (W-2 income). The client-employee is presently inquiring regarding possible approaching RMD requirements and distributions. 1. We are informed that if the client-employee continues to be employed beyond age 70 1/2, then RMD distributions are not required until retirement. 2. We are also informed that if the client-employee is a "5% owner", then the exception deferring RMD distributions until retirement may not apply. 3. We are also informed that for purposes of determining the "5% owner" rule of the plan sponsor, the employer securities held by the ESOP are not used in determining the "5% owner". QUESTION 1: Is this correct? And do you have any legal authority or citation on this issue? B. Under the terms of the ESOP plan, the client-employee-participant can be offered a partial or lump-sum distribution of the employer securities (e.g. annually) which, if elected is distributed to the participant by the ESOP as employer securities under a "repurchase-buyback" provision required by the plan sponsor corporation who buys back the distributed shares resulting in the retirement income to the participant ( 1099-R). QUESTION 2 : Can the client received both W-2 income and 1099-R distributions beyond age 70 1/2 as long as he is still employed? Thank you tdslaw@cox.net
  4. ER stock held in KSOP: Is NUA treatment available in 2018 if participant terminated employment in 2015 (at age 67) but received a small ADP testing refund in March, 2016 and no other distributions have been processed since? If participant wanted to elect NUA treatment, should he have elected to take a lump sum distribution of entire account in 2016 (the year of the small refund) since his 2015 separation from service was his triggering event or is NUA treatment an option available in 2018?
  5. Company A is a corporation and owns 100% of another corporation Company B. 100% of Company A's stock is held by an ESOP, no employee has a more than 5% ownership interest in the ESOP shares. Does a controlled group exist?
  6. An ESOP sponsor is interested in closing down a long-term ESOP plan. If the company borrows the funds to repurchase the shares from participants, is the interest on that corporate loan deductible?
  7. To take advantage of the Net Unrealized Appreciation (NUA) tax rules for shares distributed from an ESOP, the IRS requires a Lump Sum distribution from all of the employer's qualified plans of the same type (that is, all pension plans, all profit-sharing plans, or all stock bonus plans). If the employer has a 401k plan and a separate ESOP, do employees have to take a Lump Sum distribution of both the 401k and the ESOP to take advantage of the NUA? I've read different opinions on this.
  8. I work for an Esop Company and it appears we are being sold although no one has been formerly told. The signs are all there. In 2008 our stock price was worth double what it is today. The owners have hired their families and friends and showed favoritism in wages and advancement while telling the rest of us there wasn't much profit so here is a 2% raise. Then they turn around and hire another family member or friend at a high wage. They also have a separate company that they have owned for years which they purchase warehouse building that they lease back to our company essentially letting our company pay for them. They setup the leases so that our company is responsible for all maintenance and repairs, so when they buy a building through their one company, they thy renovate it and make the Esop company pay for it. They have also turned in numerous expenses that probably had nothing to do with business. When they purchased the one building that the Esop leases, they gave themselves a $333,333.00 bonus each (There are 3 primary owners)to pay to have the building built that they then turned around and leased to the Esop. Recently they fired a 30 year employee and layed off a 25 year employee with Muscular Dystrophy. I think they did it in order to obtain their shares of Esop stock. They also have donated thousands of dollar in material to different organizations that they are affiliated with for the prestige I am sure. This has taken from our Esop profits. The Trustee is a long time friend of theirs. On top of all these things, they have made many bad decisions that have affected our stock price. I fear that an announcement will be made in a few weeks that they have sold the company and many of us will lose our jobs. Do we have any recourse? Can we do anything after the sale goes through, or are we just screwed?
  9. Company had a minority ESOP that they terminated over 2 years ago when new management came in to turn around the company. They now want to start a new ESOP and sell 100% to the employees. Can this be done? Any successor plan rules to be concerned about (they seem to really apply to 401k plans). Thanks.
  10. Can a Limited Liability Company that is not a bank or trust company be named as the trustee of an ESOP? The ESOP Trustee for a client's ESOP has been an LLC that provides ESOP fiduciary and trustee services. Client is refinancing loan and being told by lender that the trustee technically should have been the individual owner/manager of the LLC in his individual capacity and not the LLC itself. I cannot figure out why. Any thoughts?
  11. If, instead of using a law firm, an employer wants to make an employee stock ownership plan by using the assembly engine of FIS (Sungard) Relius, Wolters Kluwer ftwilliam, or another documents provider, which would you choose? Which has the most flexibility in choices of plan provisions? If the user lacks expert knowledge of ESOPs, which has a questionnaire or input system with the best help in discerning what the employer wants? Which provider's documents are easiest for an employer or its TPA to understand? What other factors should I consider in helping a friend select a plan-documents provider?
  12. If a company wants to convert from an S to a C so that the owner/seller can make a 1042 election, will the owner have to then wait three years to meet that holding requirement of 1042? Or does their ownership of the S stock (assuming for three years) tack over? I could have sworn that the ownership "tacks" but I can't find much support out there. If anyone has some support, I would appreciate it. Thanks!
  13. Spouse and I agreed to divide all assets and holdings prior to non contested divorce. I gave up everything on my side within the first 90 days. The other side dragged their feet and it took a year, The last remaining piece we were negotiating was their ESOP. I had agreed to equalize everything on my side so as to be entitles to 50% of their account balance. I tried to get the QDRO drafted and approved, with the correct language, prior to the Decree but was given the run around on the actual language of the "plan" multiple times. Spouse was able to get a "default decree" signed by the Judge without my knowledge. I was served papers and didn't have a valid QDRO in place. I was able to contest on the ground of misrepresentation, but only allowed to file a QDRO post Decree, The Plan administrator finally accepted the QDRO after a year of attempts and is giving me some harsh feedback on my ability to get any information as to distribution of any kind. What are my rights? They are setting up a sequestered account at the trustee bank. I have only the amount of shares I am entitled under the ESOP. With shares value under the equalization, it is supposed to be over 245K. No other papers have been sent to me as of Dec 24 2016. Any help would be greatly appreciated. I am 30k into legal fees and exhausted.
  14. Shareholder X of a corporation which sponsors an ESOP owns 4.8% of the NUMBER of outstanding shares of the company. This 4.8% is based on his non-esop shares only, and the total outstanding shares includes the ESOP shares (all outstanding company stock). Shareholder X is turning age 70-1/2, so determining his ownership % is important. If he is a >5% shareholder, he must take a substantial RMD for 2016 and all future years. If he is not a >5% shareholder, he does not have to take RMDs until he retires. Reg 1.416-1 T-17 says a 5% owner is any employee who owns (or is considered as owning within the meaning of 318) more than 5 percent of the VALUE of the outstanding stock of the corporation . . . To determine whether shareholder X is a >5% owner, can I do a pure number of shares owned over number of shares issued calculation, or do I need to know an appraised dollar value of shares for each of the other shareholders? In other words, the stock valuation for the ESOP may say ESOP shares are worth $10, but another owner may have a different per share value based on his specific discounts applied, depending on minority/majority and deemed marketability. If some shareholders' stock is worth say $8.00, then the math could work out that shareholder X owns more than 5% of the VALUE of all shares. Assume voting rights are equal for all shares. Which way does the 5% determination need to be made - number of shares or dollar values - and has anyone heard of the non-esop shares being valued for a purpose like this? Thanks.
  15. Our Company became an ESOP several years ago. A DOJ review found that the company overvalued the shares sold to the ESOP. To satisfy the DOJ the partners of the company, who sold the shares to the ESOPS ,purchased back 80% of the shares from the ESOP. This made the DOJ satisfied. So the employees now only own 20% of the company. Something that has never been disclosed to the employees since it occurred several years ago. All our company documentation still lists us as employee owned. Though not partially employee owned Now the owners of the majority are marketing the company to third party buyers. My question is about what is owed to the employee stock owners as far as disclosure in the original stock purchase being nullified as well as when or if we must be notified that the company is being sold. We have an ESOP representative on the board. We have never met him. He has never conveyed anything to us. I was told it is his job to represent our interests. It seems informing us of all these sales and legal matter WOULD be in the employee interests? All of this information was told to be by a very close friend in accounting. The company has never acknowledged it to any of us.
  16. Questions regarding a proposed S-ESOP structure. Individual X owns 100% of Corporation Y and 5% of Corporation Z, each an S corporation. ESOP, which forms a portion of Corporation Y's 401(k) plan (the KSOP), owns the other 95% of Corporation Z. Corporation Z will have two officers but no other employees, although some of the services provided by Corporation Y employees benefit Corporation Z. Plan participants will receive a non-discriminatory discretionary employer contribution and will be given a one-time election to invest the contribution in Corporation Z stock. Afterward, participants may not enter or exit the stock fund except upon a distribution event or to satisfy ESOP diversification requirements. No participant will own 5% or more of Corporation Z through the KSOP. 1. Does the KSOP meet the requirements of an exempt employees' trust under section 1.1563-2(b)(4) and section 1.414©-3©(2), which would mean that the ESOP stock in Corporation Z is excluded and would make Corporations Y and Z members of a controlled group? Might Corporations Y and Z be treated as a single employer for this purpose? 2. If future contributions are not made to the ESOP portion of the plan for several years after the initial contribution, but substantial and recurring contributions continue to the 401(k) portion of the plan, has the permanence requirement of 401(a) been satisfied?
  17. Is as loan used to acquire stock for a leveraged ESOP reflected on Form 5500, Schedule I under total plan liabilities? From what I could find my conclusion would be "no." But, I don't see anything definitive in the Form 5500 instructions. Thanks.
  18. FACTS: ESOP plan effective 01/01/2012, Cycle D (submission period ending 01/31/2015). This plan is not a "true" ESOP. It has no loans and no shares contributed. The Employer made a cash contribution in 2012 with the intention of buying stock, but never ended up doing so. The only accounts in the plan are cash accounts (profit sharing). The Employer was talked into this plan by their prior TPA and has since terminated their services and has hired us to takeover and terminate this ESOP. In addition, the client has a 401k plan that is effective 11/01/1984 that we are also taking over and this plan will be continuing. The Employer wishes to terminate the ESOP effective 08/01/2014. Concern: I'm concerned that the ESOP document is not updated according to the current cumulative list (2013) since the plan is effective 01/01/2012 (adopted in December 2012). In addition, I do not believe the plan was submitted for Determination Letter off-cycle (new plan exemption). So no DL has ever been issued. My concern is what if the plan were to be audited? Question: Rather than restating to another ESOP document for Cycle D, can we restate the plan to a "profit sharing" plan on a pre-approved PPA Document effective 01/01/2014 and then terminate the plan effective 08/14/2014? Or should I not worry about restating the plan and just do a board resolution to terminate it and be done with it? Any suggestions or thoughts are appreciated. We do not provide document services for ESOP so I am way out of comfort zone here. Thank you!
  19. Ok, so I'm crying uncle in trying to find the correct way to do this. Any ESOP Experts out there???? Please chime in. Cash Dividends were used to pay down a leveraged loan. The split between the two are approx 6% allocated and 94% unallocated. Using round numbers, the Employer made a $100,000 dividend payment. So naturally $6,000 would be for the allocated shares and $94,000 for the unallocated shares. Shewwww I can do math! So doing the FMV calculation, we find that the shares value based on the day before the loan payment is greater than the FMV on the date the dividends were declared. So no adjustments necessary. Shewwww again! So we move on to the share release. The loan payments paid with cash and unallocated dividends are released on proata compensation (according to the document). Easy Peasy....Shewww! The allocated dividend shares are to be released on prorata shares. OHHH crap. So my question is this..... Is the actual transaction a contribution or is it a dividend or just a transfer in? No where (that I can find) tells you exactly how the transaction should be structured from a recordkeeping endeavor. HELP!!!!
  20. I have taken over the administration of a leveraged ESOP for a S-Corp. The ESOP was set up to pay out a partner with a 5-year loan which ended in 2012. The problem is that the loan payments from the very first year were more than the deductibility limit. The previous administrator 'solved' this problem by allocating released shares up to the deductibility limit and then allocating the remainder of the shares as dividends. The number of shares used as dividends were greater in most plan years than the number of shares allocated. I've done research, but cannot figure out if this is an allowable solution. Any ideas?
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