Blue Ridge ESOP Associates Industry News

Establishing and maintaining a qualified retirement plan for employees can be expensive. It is important for plan sponsors to understand all the costs involved, if those costs can be classified as plan expenses that can be paid from plan assets, and how to allocate those expenses.

As your ESOP matures, you may feel that you and your employees are starting to better understand your plan provisions and the benefits an ESOP provides. It is important for participants to feel engaged and knowledgeable about their plan. One item that can be difficult to communicate to your employees and comes later in the ESOP’s development is diversification. Your participants will want to know when they can diversify, how much they can diversify, and what their diversification withdrawal options are. 

At the Wisconsin ESOP Spring Conference this week, our Blue Ridge professionals, Beth Bauer and Pam Themar, will be speaking together about the "Administrative Top 10 Reasons your TPA gets Called". In this session, a discussion will be led on a list of hot topis that can occur through the life of an ESOP.

At the Illinois ESOP Spring Conference last week, Kevin Rusch presented on a panel that reviewed the roles of "Trustees & TPAs". The panel was able to answer questions from basics like what do they do and why does your company need them to more complex such as share allocations and limiting liability. The purpose of the session was to help companies manage the day-to-day operations of their ESOPs.

Blue Ridge ESOP Associates is proud to be a sponsor for the 32nd Annual Ohio Employee Ownership Conference.

The annual ASPPA Eastern Regional Conference is being held this week in Philadelphia, PA. Tom Roback will be moderating the following session on Thursday, April 26 from 1:05-2:20 p.m.

Does your company need a written distribution policy?  The purpose of this article is to provide a high level overview of the importance of a written distribution policy and topics to consider. 

Your Plan Document will discuss the requirements for paying out distributions to plan participants once a distributable event occurs - death, disability, retirement, termination, QDROs or diversification.  Some plans also allow for in-service distributions, dividend pass-through, and hardship withdrawals, which you may want to include in your policy. The provisions listed in the document generally fall along the statutory guidelines, which are the maximum payout terms allowed by the Internal Revenue Code (IRC). Your written distribution policy should address form, method and timing of distributions payouts.

A distribution policy may be part of the plan document, yet most times it is a separate document. A separate document allows for easy modification when the need arises. Qualified plans are subject to IRC Section 411(d)(6) regarding distribution requirement modifications, however ESOPs are an exception to this rule as long as they are updated in a “non-discriminatory” manner. Along with the plan document, the IRS may request to review the policy as part of their determination review process.     

It would be quite disturbing to a person to wake up, look in the mirror and see the reflection of someone else. However, this is what happens when a leveraging transaction is set up, expected to be a mirror note, but the provisions of the note are not at all identical. You might be thinking that this is ludicrous, how could this happen to an ESOP? The answer is a lot more common than you would think. Understanding the ESOP loan is extremely important and vital to maintaining a compliant Plan.

It is very common for an ESOP to purchase shares through a leveraged transaction. It is also very common to see a two part transaction agreement between three entities: the Company, the ESOP and a financial institution. In stage one, a financial institution will lend the money to purchase the ESOP shares to the Company with a loan agreement, from this point on referred to as the External Note (aka Company Note). The second stage is the loan agreement between the Company and the ESOP to purchase the shares, from this point on known as the Internal Note (aka ESOP Note). In this scenario you have two separate loan agreements. When the provisions of the loan agreements are exactly identical, you have what is called a mirror note.

If you are a sponsor of a 401(k) or profit sharing plan, it is likely that your plan documents are in the “pre-approved” category (prototype plan document or volume submitter). Such plans are subject to six-year restatement cycles. The next restatement cycle, referred to as the PPA Restatement period, opened May 1, 2014.

A restatement is a complete re-writing of your plan document to incorporate changes in laws that have occurred since the end of the prior cycle. This includes the Pension Protection Act (PPA), the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) as well as other changes.