Blue Ridge ESOP Associates Industry News

Form 5500 changes are coming. The IRS published the proposed Form 5500 for 2015, and new questions are embedded in the return:

• Trust information, including name of trust and its federal identification number, name of trustee and trustee phone number
• Plan document questions relating to whether the plan has been timely amended ,and a request for the date of the most recent determination letter (or opinion letter for plans using a volume submitter or prototype document)
• Question regarding any tax deductible dividends paid by a C corporation ESOP
• Question on whether the plan has incurred unrelated business taxable income
• 401(k) nondiscrimination testing questions
• Coverage testing questions

If you are wondering if your plan can be creative with compensation used to allocate employer contributions, then you need to be aware of the ramifications of such changes.

Read the first section of this article here regarding ESOP & 401(k) Coordination Tips Post-Disclosure.

After several postponements, 401(k) fee disclosure was mandated by the DOL (Department of Labor) before July 1st of 2012. So what kind of impact have we seen in the ESOP world? Has it been successful in helping plan sponsors and participants understand the costs of their 401(k) Plans?

Most companies with an ESOP also sponsor a 401(k) plan for their employees. However, the designs for these two plans are not always coordinated. The administration of the plans may lack coordination as well. It’s not uncommon to find ESOP and 401(k) plans sponsored by the same employer with differing definitions of compensation, differing eligibility exclusions, etc. Differences “by design” are fine, but unintentional differences can result in operational errors. The following real life examples (and commentary) illustrate the importance of coordinated design for paired ESOP and 401(k) plans.

Example 1: ABC Company adopts a new ESOP. Per the ESOP document, “Compensation” is gross compensation paid, less reimbursements, expense allowances, and fringe benefits. The corresponding definition in the 401(k) plan is gross compensation including fringe benefits. ABC Company provides the same census data to its 401(k) and ESOP administrators. After year end, the plan auditors discover that the ESOP third party administrator (TPA) has used the wrong compensation definition in allocating contributions.