ESOP & 401(K) OR just a KSOP?

[Guest sugar daddy]

An existing ESOP is entertaining the idea of a 401(k). I would think a standalone 401(k) would be less costly administratively than a KSOP. Any opinions on pros n cons?

Thanks

[A Shot in the Dark]

I think the following factors need to be considered:

Two Plan Documents to maintain - Two Plan Administration costs to be paid - Two form 5500's, and any duplicit processes that may be invloved

Versus:

Amending ESOP Plan document to include 401(k) Provisions - Completing the necessary 401(k) compliance within the KSOP document.

And if there is a plan audit requirement subject to plan participant size you must take into consideration the audit fees.

I think you would also need to consider fiduciary/trustee issues.

[ESOP Guy]

I have found over the years there are plenty of good ESOP people. There are plenty of good daily 401(k) people. There are very few good daily 401(k)/ESOP people.

There are practical issues often times. People expect their 401(k) money when they terminate very quickly. ESOP distributions can take a long time because it takes a long time to get the new stock price. (I am assuming the stock is not publicly traded) Is the plan going to make 2 payments or hold the 401(k) until the ESOP is ready? Do you hold 401(k) statements to add the ESOP data, or issue two statements?

That is a sample of the issues I have had with KSOPs.

On the other hand if you can cut the number of audits in half that alone can save enough to make many of these issues worth dealing with them.

I would add I once worked with a daily KSOP with a publically traded stock. Since both assets had a daily market value that worked really nice.

[Kevin C]

If the employer is considered publicly traded, keep in mind the PPA diversification requirements that apply to a KSOP, but not a stand alone ESOP.

[GMK]

We run an ESOP (private stock) and a separate 401(k), and I like it that way.

All of the comments above are on point.

Regarding plan document maintenance, we have a check-the-boxes 401(k), so the only real document work is the ESOP Plan Doc. And that wouldn't change with a KSOP.

Although we're small, we audit the ESOP, but not the 401(k), so auditing both (with a KSOP) would likely increase audit costs.

Most issues, notices, etc. are specific to the ESOP or the 401(k), and not to both, so no big advantage to putting them together for that. I don't know of any record keeping that would be reduced with a KSOP. And the issues ESOP Guy raises about distributions from a KSOP are avoided with separate plans.

It is (or at least seems to me to be) more convenient to do annual statements, 5500, etc. with separate plans. When one or the other is done, it's done. And most of the data for one are different from the data in the other. I keep all my info and notes in one spreadsheet with different reports for the two plans.

It might be different if the stock were daily valued.

[Guest sugar daddy]

Thanks.

I guess the delay in receiving benefits could also apply to a 401(k) if they matched with private employer stock.

[Ron Snyder]

My idea of a KSOP: KSOP