» Proposed ESOP Legislation
2011 Cost-of-Living Adjustments
May, 2011
The following is a list of affected sections of the Code and the 2010 limitations of interest to the ESOP community
Code Section Description 2010 Limitations 2011 Limitations 401(a)(17) Limit on the amount of annual compensation taken into account $245,000 $245,000 402(g)(1) Limitation on the exclusion for elective deferrals described in Section 402(g)(3) of the Code $16,500 $16,500 404(l) Limitation on the amount of annual compensation taken into account $245,000 $245,000 409(o)(1)(C)(ii) Dollar amount for determining the maximum account balance …Read More..
S Corporation Rules Involving Section 409(p)
May, 2011
Section 409(P) of the Code, which was enacted as part of the Economic Growth and Tax Relief reconciliation Act of 2001, sets forth anti-abuse rules for ESOPs that are maintained by S corporations. The following is to summarize the restrictions of Section 409(P), as follows:
Basic Rule: No assets of an ESOP may be allocated (directly or indirectly) for the benefit of any Disqualified Person if, at any time during the plan year, Disqualified Persons, in the aggregate, own 50% …Read More..
The ESOP Association 2009 Year-End Legislative Update
May, 2011
S. 1612 – The ESOP Promotion and Improvement Act of 2009:
On August 6, 2009, Senator Blanche L. Lincoln (D-AR) introduced S. 1612, the ESOP Promotion and Improvement Act of 2009. The legislation has four sections, including an entirely new proposal to remove a 35 year bias against ESOP companies by the Small Business Administration.
One, S. 1612 would repeal the punitive 10% penalty tax on S corporations distributions from current earnings, also referred to as dividends, placed on the …Read More..
New Law on S-ESOP Prohibited Allocations
May, 2011
MEMORANDUM
From: Legal Department Date: January 2008
Subject: Prohibited Allocations in S Corp ESOPs
Section 409(p) of the Code, which was enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001, sets forth anti-abuse rules for ESOPs that are maintained by S corporations. The following is to summarize the restrictions of Section 409(p), as follows:
Basic Rule: No assets of an ESOP may be allocated (directly or indirectly) for the benefit of any Disqualified Person if, at …Read More..
Highlights Of The Pension Protection Act Of 2006
May, 2011
I. PROVISIONS AFFECTING ESOPS S Corp UBIT Exemption
The unrelated business income tax (“UBIT”) exemption that currently applies to S corporation ESOPs, together with the related §409(p) anti-abuse provisions, have been made permanent. These provisions were scheduled to expire at the end of 2010. As the result of PPA, these provisions have been made permanent, and S corporations that sponsor ESOPs will continue to be exempt from income tax and from UBIT to the extent that company stock is held …Read More..
May, 2011
I. INCREASES IN CONTRIBUTION, DEDUCTION AND BENEFIT LIMITS
- Contribution Deduction Limits. The limit on an employer’s deduction for contributions to a non-leveraged ESOP or a profit sharing plan is increased from 15% to 25% of participants’ aggregate compensation. 401(k) deferrals are not counted for purposes of the deduction limits. However, 401(k) deferrals will be included for purposes of calculating the compensation on which this limit is based. The deduction limit for money purchase pension plans remains at 25%. Effective: …Read More..
Economic Growth and Tax Relief Reconciliation Act of 2001
May, 2011
Comparison of Old and New Provisions
Current Law New Law (EGTRRA) I. Increases in Contribution, Deduction and Benefit Limits Contribution Deduction Limits: An employer’s deduction for contributions (including 401(k) deferral contributions) to a profit sharing or stock bonus plan is limited to 15% of participants’ taxable compensation. The money purchase plan limit is 25%.
- The 15% deduction limit is increased to 25%.
- 401(k) deferrals do not count against the limit.
- Compensation used to determine deductions includes deferrals.
- Money purchase plan …Read More..
New "Required Minimum Distribution" Rules
May, 2011
MEMORANDUM TO: ALL CLIENTS FROM: MENKE & ASSOCIATES, INC. LEGAL DEPARTMENT DATE: JULY 18, 2001
SUBJECT: NEW “REQUIRED MINIMUM DISTRIBUTION” RULES
Depending on the terms of your Plan, participants who are age 70½ or older, are generally required to receive a distribution from the Plan every year. We will refer to this type of a distribution as a “Required Minimum Distribution” or “RMD”. Under the old rules, the annual amount of the RMD was calculated using life expectancy tables, but only …Read More..
New Requirement on Fidelity Bonding for Qualified Employee Benefit Plans
May, 2011
MEMORANDUM TO: ALL CLIENTS FROM: LEGAL DEPARTMENT DATE: JULY 18, 2001
RE: NEW REQUIREMENTS ON FIDELITY BONDING FOR QUALIFIED EMPLOYEE BENEFIT PLANS
I. BACKGROUND
Current regulations under ERISA require generally that all Employee Benefit Plans engage an Independent Qualified Public Accountant ( IQPA) to perform an annual audit of the Plan, and to include that accountant’s report as part of the Plan’s annual report. An exemption to this requirement has been given to small pension plans with less than 100 …Read More..
Contribution and Allocation Limitations
January, 2010
CONTRIBUTION AND ALLOCATION LIMITATIONS FOR PLAN YEARS ENDING IN 2009
Date: January 2010
C CORPORATION CONTRIBUTION LIMITATIONS (Sec. 404 of the Code):
Example: (The Sec. 404 limit is calculated for all employer plans in the aggregate.)
Sec. 404 Gross Compensation 1 $245,000.00 Less Sec. 401(k) Salary Reduction 0.00 Less Sec. 125 Salary Reduction 0.00 Net Compensation $245,000.00 x 25% (or 50% if the ESOP is leveraged)2 x 25% Maximum Total Contribution to All Plans 3 $61,250.00 Less Sec. 401(k) Salary …Read More..
