Blue Ridge ESOP Associates Industry News

Electronic Disclosure Requirements for Plan Notices

Posted by Scott J. Freund, QPA

Feb 20, 2015 5:17:20 PM

email_vs_mailIn this day and age we are increasingly reliant on receiving information electronically. With the desires to “Go Green”, many companies rely on electronic delivery of information to their clients. With respect to required ESOP notices, however, it is important to understand the rules of what can be delivered electronically to participants, and how those notices must be delivered. As an example, just putting a copy of your Summary Plan Description (SPD) on your company website may not be a sufficient method of delivering that document to your employees.

The Department of Labor (DOL) issued a regulation in 2002 which is commonly referred to as a “Safe Harbor” method for delivery of plan disclosure documents. Documents such as the SPD, Summaries of Material Modification to the SPD (SMM) and Summary Annual Reports (SAR) can be electronically posted to a website for participants to access. These electronic accesses to those plan documents though are limited to two categories of participants:

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Topics: Government & ESOPs

IRS Releases New Technical Advice Memo on ESOP Loan Error

Posted by Jacob B. Nadkarni

Oct 27, 2014 10:46:38 AM

This past June, the IRS released Technical Advice Memorandum (TAM) 201425019, which addressed the tax consequences of an ESOP failing to use the proper method of calculating the annual release of company stock from the loan suspense account.

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Topics: Government & ESOPs, ESOP Administration

Implications of a Supreme Court ESOP Ruling

Posted by Dolores P. Lawrence, CPA, QKA

Jul 9, 2014 3:57:49 PM

Background. When a company’s retirement plan includes employer stock as an investment option and stock value declines significantly, plan participants may seek to recover losses. In the past decade, there have been many “stock drop” lawsuits and most have involved public companies that sponsor KSOPs or other plans holding employer stock. Claimants have alleged that plan fiduciaries failed to liquidate employer stock or failed to restrict further purchases when such investments became imprudent. Defendants have responded by citing The Moench Presumption as part of their defense.

In the 1995 ESOP case Moench v. Robertson, public company stock declined sharply before the company went bankrupt. ESOP fiduciaries continued to invest in company stock while the share price dropped from $18.25 to $.25 over a two-year period. The Third Circuit court ruled that ESOPs are designed to be invested in employer stock and there is a “presumption of prudence” for holding employer stock in an ESOP. A plaintiff can overcome the presumption by establishing that a fiduciary abused its discretion by investing in employer stock.

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Topics: Government & ESOPs

IRS - DOL Corner

Posted by Dolores P. Lawrence, CPA, QKA

Jul 3, 2014 4:11:00 PM

The IRS continues its series of focused, limited scope audits. Audit initiatives include looking at:
  • Nonqualified deferred compensation plans. IRS is considering operational and plan document compliance, including compliance with IRC Section 409A. Their examinations will focus on elections to defer the receipt of compensation, plan distributions and funding restrictions.
  • Defaulted participant loans. There is a concern that loans are not being repaid in a timely manner and that some loans are not be getting taxed as “deemed distributions” when a loan goes into default. Generally, a loan goes into default no later than the end of the calendar quarter which follows the quarter in which a payment was missed. On default, the entire loan is taxed as deemed distribution, not just the payments in arrears.
  • For 401(k) plans, ADP/ACP tests that have not been run correctly or situations in which failed test corrections are not made timely.
  • Plans with Roth provisions. There is a concern about deferral and distribution errors due to the complexities of administering Roth provisions.
  • Small employers with multiple plans!   IRS has a concern that there could be a greater risk of error in administering multiple plans. For example, if a company sponsors an ESOP and a 401(k) plan with different definitions of compensation, are there errors in the compensation data provided to third party administrators?
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Topics: Government & ESOPs

ESOPs : Time to take a look

Posted by Tom Roback, Jr.

Jun 12, 2014 9:34:28 AM

Employee Stock Ownership Plans (ESOPs) seem to be generating more interest from business owners lately. While ESOPs have similarities to 401(k) plans, there are big differences. ESOPs have the unique right to borrow and own up to 100% of the company's common stock. ESOP assets are held in a tax-exempt trust and employees do not contribute anything personally.

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Topics: Plan Design, Government & ESOPs, ESOP Administration