Sixth Annual ESOP U Conference August , 2013 Carolinas Chapter- Pinehurst Resort Susan Petrinena and Ed Llano Nancy Mills-Smith Swerdlin & Company K2 Solutions Atlanta, GA Southern Pines, NC 1

A Plan Year Calendar by: Reporting Cycle Responsibilities Responsible parties 2

ESOP “Team”  Plan Sponsor- ESOP Company ◦ Financial Professional ◦ Human Resource Department ◦ Payroll  ESOP Attorney  Trustee  Valuation Professional  Third Party Administration (TPA)  Auditor 3

 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 1 st 90 days of the plan year following diversification year 4

 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. 5

 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. 6

 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 15 th deadline for any necessary refunds. 7

 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. 8

 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 1 st 90 days and processed within the next 90 days. 9

 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. 10

 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. 11

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). 12

 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. 13

 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. 14

 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. 15

Questions? Susan Petrirena & Ed Ilano Swerdlin & Company 5901 Peachtree Dunwoody Road Building B, Suite 170 Atlanta, GA Phone: Nancy Mills-Smith VP of Operations K2 Solutions, Inc Hwy U.S. 1 Southern Pines, NC Phone