Message Boards Digest

May 27, 2021

Here are the most recently added topics on the BenefitsLink Message Boards:

Vlad401k created a topic in Form 5500

Use Form 5500-EZ for Plan with 2 Participants?

"A plan has 1 active participant who is 100% owner. However, the total participant count is 2 (one owner + another employee who still has a balance, is not an owner, but is terminated). Would a Form 5500-EZ or 5500-SF be filed?"

3 replies so far   |    Click Here to Add a Reply

dpav created a topic in Plan Terminations

DB Plan Termination: Participant in Pay Status Won't Accept Buyout But We Can't Purchase a Replacement Annuity

"DB plan is being terminated under a PBGC standard termination. Plan provides the lump sum option to all participants. One retired participant receiving monthly benefits (value of his benefits >$5,000) refuses to elect the lump sum option, and no insurance company is willing to offer an annuity contract for this participant's benefit. Is there any way this plan can be terminated? Can this participant hold up the plan's termination?"

1 reply so far   |    Click Here to Add a Reply

JimboPColtrane created a topic in Employee Stock Ownership Plans (ESOPs)

Valuation Question About My Employer's ESOP

"I have a question with regards to the application of an ESOP valuation as is affects the share price paid to outgoing direct shareholders. My employer is roughly 70% ESOP-owned and 30% owned by direct shareholders. When a valuation takes place, a new enterprise value is reached by the weighted average of 3 different methods (DCF, CCF, & Guideline). A discount for lack of marketability is then applied for a final enterprise value. The final enterprise value is then divided by the number of outstanding shares to get the new share price.

Assuming the new valuation is higher than the previous valuation (as is usually the case), the new share price is higher for two reasons: [1] the company is worth more, and [2] there are fewer outstanding shares than the previous year because there are always many more shares sold by departing employees than bought by existing employees.

For example, in a recent year the share price went up 14%; 8% was due to an increase in the value of the company while 6% was due to fewer outstanding shares. Because all ESOP transactions take place on the last day of the year the new valuation is as of 12/31 as is the sale of the stock by outgoing employees.

My concern is that, if outgoing direct shareholders are paid using the new 14% higher valuation, then they're getting the 6% benefit of fewer outstanding shares. This seems like faulty, circular logic to me. There aren't fewer shares until AFTER they sell, so in my opinion they should only be paid at an 8% premium not a 14% premium. But since it all happened on 12/31 the company paid them out at the full 14% premium. Am I correct in thinking this is a problem or am I not understanding something?"

3 replies so far   |    Click Here to Add a Reply

EBECatty created a topic in 401(k) Plans

Otherwise Excludable Employees and ADP Testing

"I don't get heavily involved in testing, so I'm hoping to clarify a point on ADP testing of otherwise excludable employees.

Say a plan has immediate eligibility for deferrals, but age 21 and one year of service for all other contributions. Entry dates are January 1 and July 1. Plan year is a calendar year. An employee is hired in March 2019, works a year of service by March 2020, and enters the plan July 1, 2020. The person's March-December 2019 compensation makes them an HCE for 2020.

For 2020 ADP testing, is that person tested as an HCE with the otherwise excludable group or the 'regular' (i.e., fully eligible) group?"

9 replies so far   |    Click Here to Add a Reply

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