2017 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.

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.

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.).

Definitions of ESOP Compensation

2013 ESOP Required Minimum Distributions (RMDs)

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 Hours of Service

When you are preparing your annual plan year end census file for your ESOP Third Party Administrator (TPA), there is a very good probability you need to provide hours of service for each employee.  Hours of service are generally used to perform the eligibility analysis to enter the plan, determine who has met the allocation requirements to share in the contributions for the plan year, and update an individual’s vested years of service.

Issue Your Preliminary ESOP Diversification Forms by March 31st

As a Plan Sponsor of a mature ESOP with a December 31st plan year end, you need to be aware of the Internal Revenue Code's ESOP Diversification requirements that apply to your plan.

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