Keeping the ESOP Fresh with Total Compensation Statements

Another year end has come and gone!   By February, many calendar year ESOPs are in the midst of the valuation and allocation cycle for the previous plan year.  You're in a holding pattern, waiting to schedule employee meetings, and distribute participant statements.  But it doesn't have to be this way.  This is also the time of year when many companies do their annual performance and compensation reviews — which makes it a great time to prepare total compensation statements. 

2016 ESOP Benefit Payment Government Filings (IRS Forms 1099-R, 1096, 945)

If you paid any ESOP or other qualified retirement plan distribution of $10 or more last year you will have to prepare and file some government forms: Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

2015 ESOP Benefit Payment Government Filings (IRS Forms 1099-R, 1096, 945)

If you paid any ESOP or other qualified retirement plan distribution of $10 or more last year you will have to prepare and file some government forms: Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

The 2015 Instructions for Forms 1099-R and 5498 provides guidance on how to prepare and file the 2015 forms.  Prior instructions can be found here.

ESOP Compensation for ESOP Allocations

As mentioned in our prior article on ESOP Compensation for Compliance and Nondiscrimination Testing, one of the most important items that a plan sponsor will need to gather for ESOP administration purposes is plan compensation.  The legal compensation requirements are defined by the Internal Revenue Code and your specific plan requirements are defined in your plan document. 

Compensation is defined for allocating ESOP and other qualified retirement plan contributions, determining deduction limits, and nondiscrimination testing.  Depending on your plan design, there may be differing definitions for each plan component/money source (e.g. ESOP, safe harbor match, discretionary profit sharing, salary deferrals, etc.).

ESOP Compensation for Compliance and Nondiscrimination Testing

One of the most important items that a plan sponsor will need to gather for ESOP administration purposes is plan compensation.  The legal compensation requirements are defined by the Internal Revenue Code and your specific plan requirements are defined in your plan document. 

Compensation is defined for allocating ESOP and other qualified retirement plan contributions, determining deduction limits, and nondiscrimination testing.  Depending on your plan design, there may be differing definitions for each plan component/money source (e.g. ESOP, safe harbor match, discretionary profit sharing, salary deferrals, etc.).

Fiduciary Liability Insurance for ESOP Fiduciaries

Deductible Dividends Paid to an ESOP

In my prior blog post, I discussed the maximum contribution deductions limits for an ESOP.  ESOPs also have additional tax saving opportunities by providing deductions for dividends paid to an ESOP.

Computing Your Maximum ESOP Contribution

Employers are limited to the amount of contributions that can be contributed to their defined contribution plans, which includes ESOPs, and deducted on their corporate tax returns.  The deduction limit under IRC §404(a)(3) is 25% of the aggregate compensation of the plan participants and covers:

ESOP RMDs due April 1st

It won’t be long and April 1st will soon be upon us.  One requirement for ESOPs and other qualified retirements plans is to distribute Required Minimum Distributions (RMDs) to eligible plan participants.

Using Elapsed Time in an ESOP

In a previous post, I discussed the importance of tracking Hours of Service for purposes of performing the eligibility analysis to enter the ESOP, determine who has met the allocation requirements to share in the contributions for the plan year, and update and individual’s vested years of service.  An alternative approach to counting hours worked is using the elapsed time method of crediting service.  Using this method can be particularly beneficial to part-time workers that will not work 1,000 hours during a plan year.

Search Our Blog Library:

Keep Your ESOP On Track and On Time
New Call-to-action