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A Year In the Life of an ESOP

Sixth Annual ESOP U ConferenceAugust 15 - 16, 2013

Carolinas Chapter- Pinehurst Resort

Susan Petrinena and Ed Llano Nancy Mills-Smith Swerdlin & Company K2 Solutions Atlanta, GA Southern Pines, NC

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A Plan Year Calendar by:Reporting CycleResponsibilities Responsible parties

Today’s Agenda

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ESOP “Team” Plan Sponsor- ESOP Company

◦ Financial Professional◦ Human Resource Department◦ Payroll

ESOP Attorney Trustee Valuation Professional Third Party Administration (TPA) Auditor

Responsible Parties

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TBD: Prepares 1099-R forms to report distributions for the prior calendar year.◦ 1099s must be post marked no later than January

31st. TBD: Prepare and send Form 945 and copies of

1099-Rs to IRS.◦ Tax Form 945 must be post marked prior to the last

day of February. Form 1099Rs are due and generally filed electronically by that same date.

HR/TPA: Provide Qualified Participants with preliminary diversification notices. ◦ Election forms must be received within the 1st 90

days of the plan year following diversification year

First Quarter

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ESOP Company: Prepares and provides copies of financial statements to Valuation Firm for their use in drafting an opinion on the fair market value of company stock as of the last day of the fiscal year.

Valuation Firm: Delivers a draft opinion regarding the fair market value of the stock to Trustees

Trustees: Review the opinion and provide comments/feedback

Valuation Firm: Considers comments and make adjustments before preparing the final opinion of the fair market value of the company stock.

First Quarter

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Trustees: Approve the Valuation Firm’s final opinion of the fair market value of ESOP Company.

Valuation Firm: Meets with Trustees, ESOP Company, and/or Benefits Committee to deliver full valuation report.

ESOP Company: Finalizes the fair market value of ESOP Company stock.

Trustees: Perform due diligence to determine prudence of continued investment in ESOP Company stock.

First Quarter

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Payroll/HR: Delivers completed data request to TPA.◦ Data request generally includes census/payroll data

for ALL employees employed during the Plan Year.◦ ESOP financials, including copies of bank

statements and/or distributions processed.◦ Stock activity-recycled shares vs. redeemed shares.

TPA: Reviews and updates employee census data and prepares initial plan compliance tests (i.e., ADP/ACP test, maximum deductible contribution)◦ ADP/ACP testing is prepared early in order to meet

the March 15th deadline for any necessary refunds.

First Quarter

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TPA: Calculates share release, allocates company contributions and forfeitures to participants’ accounts.

TPA: Completes all annual compliance tests (i.e., Annual Additions, Top Heavy, 409(p) Anti-abuse)

TPA: Prepares and delivers to Benefits Committee: participant account balance statements, compliance reports and information addressing termination, eligibility for diversification and required distributions for age 70 ½ or older.

Second Quarter

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HR/Payroll: Distributes Participant ESOP statements.

TPA: Prepares and provides a draft Form 5500 and summary annual report to the Plan Sponsor.

Accounting Firm: Completes the accountant’s opinion and supporting schedules for filing with Form 5500 (plans over 100 participants).

• HR/TPA: Executes diversification election instructions received from qualified participants. NOTE: election forms must be received within the 1st 90 days and processed within the next 90 days.

Second Quarter

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TPA: Finalizes Form 5500 and provide signature ready forms to the Plan Sponsor.

TBD: Files Form 5500 for the previous plan year (or request an extension). Due by the last day of the seventh month following the last day of the plan year.

Third Quarter

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ESOP Company: Makes final company cash contributions for previous year prior to the corporate tax filing deadline.

HR/Payroll: Distributes Summary Annual Report to participants (by the deadline for filing Form 5500 including an extension).

Benefits Committee: Makes distributions to participants and beneficiaries.

Third Quarter

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• HR/TPA: Remits taxes withheld from distributions to IRS.

• TPA: Rollover small account balances under the “Cash Out Threshhold” in accordance with Plan.

TBD: One last chance to file Form 5500 (if extension was requested), by 9 ½ months after the plan year end.

HR/Payroll: Distributes summary annual report to participants (if Form 5500 extension was requested).

Fourth Quarter

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HR/Payroll: Reminds participants to consider changing beneficiary in light of events during the year.

Trustees: Engages valuation firm to prepare the valuation report for the stock for the current plan year end.

TPA: Delivers data request for the current year to Plan Sponsor; to requests information necessary to prepare the administration reporting and disclosures……..Start all over again.

Fourth Quarter

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HR/Payroll◦ Reviews personnel files to determine which

employees will begin participation in the ESOP; provide new participants with summary plan description and beneficiary designation form.

◦ Distributes Summary of Material Modifications to plan participants to notify them of any plan amendments.

◦ For ESOP’s with 401(k) feature: Timely remittal of salary deferrals/loan payments (if applicable) to 401(k) record keeper.

Periodic Compliance Actions

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Attorney: Amends plan document for changes required by legislation or for changes initiated by Plan Sponsor; prepare Summary of Material Modifications as necessary to notify participants of changes to plan.

Trustees: Votes stock held by the ESOP unless pass through voting applies, which will require solicitation of participants.

TBD: Prepares repurchase liability forecast.

Periodic Compliance Actions(continued)

Questions?

Susan Petrirena & Ed Ilano

Swerdlin & Company5901 Peachtree Dunwoody Road Building B, Suite 170Atlanta, GA 30328Phone: 678-775-5527Email: spetrirena@swerdlin.net

Nancy Mills-SmithVP of Operations

K2 Solutions, Inc.5735 Hwy U.S. 1Southern Pines, NC 28387Phone 910-692-6898Email: nmills-smith@k2si.com