ESOP Dividends Paid on Form 5500, Schedule H?

[Guest WAB]

I'm looking for a second opinion, so please chime in:

ESOP dividends paid to participants and reported on Form 1099-DIV should obviously be included in Schedule E. Should such dividends be reported on Schedule H, part 2, line e(1): benefit payments to participants or beneficiaries?

Additional information requested by "Disco Stu" below:

These dividends are not allocated to the participant accounts but rather are paid to the participants directly as taxable income reported on Form 1099-DIV. The Plan pays stock dividends to active employees and allows the employees to make an offsetting pre-tax contribution equal to the amount of the dividend. Are such dividend payments considered "benefit payments" for Form 5500 reporting purposes?

[Disco Stu]

I need some more clarification on the nature of the dividends. Were these dividends paid on shares allocated to participant accounts inside the ESOP trust? I'm not familiar with a situation that would allow distributions to participants in this situation. Typically these dividends are held inside the trust.

[BeckyMiller]

Can't give you a specific cite here, but we have always used the logic that these amounts are associated with the plan. As such, even if paid directly by the sponsor to the participant, the amounts should be shown on the Form 5500 series consistently as dividend income of the trust and distributions to the participants.

This would also be consistent with the GAAP reporting rules.

[Kirk Maldonado]

I agree with BeckyMiller.

I seem to recall some ancient IRS guidance regarding the taxation of dividends in these circumstances that says that they are treated as distributions from the plan, so that the favorable tax treatment afforded de minimis amounts of dividends received unrelated to a plan would not apply.

[pjkoehler]

The 1099-DIV should report the plan/trust as the payer, even if the dividends are paid directly by the company. Also, presumably, you are not treating the dividends as FICA wages, the authority for which is the exclusion for amounts distributed from a qualified plan. All of these are just further consistency arguments in support of the characterization you suggest for Schedule H reporting purposes.