jmartin Posted January 17, 2014 Posted January 17, 2014 Company A has a 401k plan and ESOP. Currently run by owner A. He has a Son B and a manager C. Owner A wanted to institute an employee retention program to ensure Son B and Manager C stay with the company. The were each given 10% of stock in 2013. However the stock is vested out over 5 years. The owner wanted to know what counts for HCE determination. Do we caount the stock in their name or only the part that is released to them (pro rated share). That would make a difference at least in Manager C rather he be a 10% owner (and a HCE) or a 2% owner (and potentially not a HCE as his comp is only $139k and is not an officer)
Lou S. Posted January 17, 2014 Posted January 17, 2014 Good question. I'm not sure but if this is treated like an option to acquire than they are treated as owning it under 318(a)(4). Also on your comp, $139 would make him an HCE (unless he's not in the TPG) but not necessarily KEY.
BG5150 Posted January 17, 2014 Posted January 17, 2014 If his comp stays at $139 k, he definitely will be an HCE the following year. Did you mean "key" employee? QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
jmartin Posted January 17, 2014 Author Posted January 17, 2014 Manager C's comp was $139k in 2013. However his 2012 comp was $61k. So if he is only a 2% owner (prorated) then he may not be a HCE for 2013. I do not think he is an officer (still have to check on that though)
BG5150 Posted January 17, 2014 Posted January 17, 2014 Does he have voting rights on all or some of the shares? Is there only one class of stock? QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
jmartin Posted January 17, 2014 Author Posted January 17, 2014 As for voting rights I am not sure. All I knew was that "they are credited with only a portion of that income this year"... In terms of stock: There is roughly 1000 total shares of stock. Owner A has 300 shares to himself. 500 shares belong to the ESOP. Son B and Manager C each have 100 shares of treasury stock (100 shares of esop was bought back by company as treasury stock).
BG5150 Posted January 17, 2014 Posted January 17, 2014 This certainly is not my bailiwick, but my first thoughts are that if the stock is vested, they won't have voting rights, nor even ownership of those shares until they vest. What I don't know is who "owns" the shares (and that's your question too). Are they owned by the people, but the unvested shares just receive no vote? Again, there are just thoughts and by no means purport to be an answer, right or wrong. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
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