Plan Administrators require year end valuations of all plan assets. Most of my clients’ plans only contain stock in the sponsoring corporation so this is a straightforward, albeit important, task. Some plan admins do not provide any guidance on creating that valuation. Asking for help from them creates more obfuscation than asking a court court for advice on filling out legal forms. Fortunately, I can help. Here is the nutshell.
What is Your Plan’s Tax Year End?
Some ROBS promoters create plans for their clients with a tax year end convenient for their reporting cycle without input from the client. A few times clients provided incorrect year end stock values because they do not know their actual plan year end. Plans and their sponsoring corporation do not necessarily have the same year end cycles. Your first step is to know your plan’s tax year end. If you don’t know yours, ask your admin. This is one question they will usually answer for you.
Your plan owes a form 5500 to the DOL / IRS. You can learn more about Form 5500 filings on this IRS page. The 5500 due date is the last day of the seventh month after the plan year ends (July 31 for a calendar-year plan). Your plan admin might not ask for this information until two or three months after your plan year ends. When they ask is not the issue. The information they need is effective the plan year end, not the request date.
What Is Your Stock Price?
This is a question your plan admin will not answer for you. Year end valuations mean the stock price on the tax year end date, for example December 31.
Corporate stock can have three values; book value, fair market value, and secondary market (for publicly traded stock). Annual valuations may use the book value. Your book value can be calculated from your balance sheet. Most of my clients simply ask their CPA / accountant.
A proper balance sheet lists the assets and liabilities of the legal entity. The owner equity in a corporation is a simple calculation of assets less liabilities. Hopefully this bottom line is positive. For more information on how to read a balance sheet see this APA article.
Divide the owner equity by the number of shares issued by the corporation to obtain your stock price. Then multiply that number by the number of shares owned by the Plan to obtain the year end valuations your Plan admins need. If more than one employee owns stock in the company through the plan, the plan administrator may want to know both the total number and the separate number per employee.
How Does The 5500 Use Your Year End Valuations?
Your Plan’s Form 5500 reports the year end values of the plan. The plan is required to internally keep track of assets per employee but the 5500 only reports total plan numbers by specified categories. Qualified employer securities are a distinctly itemized plan asset on the 5500.
Most of our clients’ plans contain investments other than their corporate stock. You plan admin may have eyes on those assets (preferable) or they require you to provide those year end balances as well.
Who Do You Call if you need help?
Your first discussion is with your Plan admin. They can help you understand what information they need and when they need it. If you do not now how to properly calculate your stock price, or if you are not sure whether your corporate balance sheet or stock ledger are accurate, ask your CPA / accountant.
When do you need my help? I hope you don’t. I hope your tax advisor and your plan admin take care for you in a hassle free manner that leaves you doing what you love, working on and in your business, spending time with family and friends, doing what you love to do. I have yet to meet a rollover business startup client who loves filing 5500 forms.
You contact me when that isn’t working for you. In twelve years of helping ROBS clients, I have not yet encountered a stock price issue that cannot be resolved to the plan admin’s satisfaction.