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403b defaulted loan...Please Help


Guest KathiSL
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Guest KathiSL

I defaulted on a loan to one of my annuities. I claimed the money on my taxes many years ago and now I am being told by the company that the remaining money will be eaten up by the interest on the loan before I am eligible to withdraw it. I don't know what to do...please give me some advise.

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Unfortunately, this would really require looking at the specific contract to see what it says. If it is a governmental 403(B) plan, you'd also need to look at applicable state and local law.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Guest KathiSL

I am a teacher in California. I have no idea whether it is governmental or not, it is what the school district allows us to do in addition to our retirement. I do not have the contract as it is in the hands of my exhusband. I can try to get it.

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Whether the plan is governmental or not basically depends on whether you were a public or private school teacher. If public, it's a governmental plan, if private, it is not.

I would definitely try to get the contract. If you can't get it from your ex-husband, the company should give you a copy.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Guest KathiSL

I am a public school teacher so it must be a government plan. I will try to get the contract from my ex-husband. What does that mean that it is a government plan. Does that help or hurt my situation?

Thank you so much for helping me.

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Basically, the fact that it is a governmental plan means that you have to look more to California law (whether it is California law regulating governmental plans, or California insurance law governing annuity contracts), and less to federal law, than if it were a nongovernmental plan.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Isnt there a simple answer to all of this under contract law. If an individual takes out a loan on an annuity/LI contract, the contract provides that the owner must pay interest on the amount borrowed. A default does not cure the requirement to either pay back the borrowed money to the Insurer or continue to pay the interest on the debt. It may be that the value of the funds in the annuity have declined and the insurer is taking out the interest payments from the cash value of the annuity contract. Why not cancel the contract and transfer the remaining funds to another contract. You really need a financial planner to review your options.

mjb

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Guest KathiSL

I did not think I could cancel the contract. I thought I had to wait until I was 59 and a half.

My ex-husband has found the contract and is bringing it to me this weekend. I will read it over thouroughly, but I am still not sure I will understand it.

I do not want a financial advisor because I was seriously burned by the one who sold me these annuities. I am very suspicious of getting advise from someone who can sell me their products. I don't have a lot of trust at this point.

So do you think then that if I pay the interest, that the cash value will stop going down?

Thanks again guys! :)

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U need to have the contract reviewed by a fee only planner, an accountant or attorney who will give u impartial advice. Your advisor needs to see if u can do a tax free exchange of whatever cash value u have to cancel the outstanding loan. U need to ask the advisor the questions in your last post. All paying the interest does is prevent the ins co from invading the principal to pay the interest charges. It may be the investment media used to fund the annuity are not suitable for u.

mjb

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Guest KathiSL

How do I find a fee only advisor? My tax guy tried to take care of this 4 years ago when I got divorced. He tried to transfer the cash value to a Putnam fund and was told by the company that he couldn't because there was a defaulted loan. They told him that the money could be transferred when the loan was paid off. He tried for several months and then gave up. I think that he just did not have the expertise in this particular area needed to get he job done. How do I find an objective advisor who can get done what I need to have done without ripping me off?

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Guest KathiSL

My ex-husband brought me a box with all of my annuity stuff in it. I now have the original contract that I signed 15 years ago to start the TSA. I did not find any loan forms that I signed, although I am sure that I signed something. What is it that I need to look for in the contract?

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You need to find the provisions for taking out plan loans and the consequences of defaulting on a loan. --- You should also review the provisions for canceling/ cashout of the contract and transferring funds to another provider and any fees that will be imposed. Your should then take this information to a financial planner-- Try looking up certified financial planner in the phone book or call the CFP board at 800 -487-1497 and ask for information. The web site is www.CFP-Board.org.

mjb

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Guest KathiSL

That link that you sent me did not work.

Ok I read the contract looking at both the loan provision and the cast withdrawal information. The loan stuff looks like they are doing what they are allowed to do....taking money from my cash value to pay the interest on the loan. I am not sure if the interest rates are right though.

When I read the benefits section it says that I can withdraw the money any time I want before the annuity date. I cannot withdraw for less than $500 or leave a balance of less than $500. It says that if I withdraw the entire cash value that the contract will stop. They can defer payment to my of my cash value for up to 6 months.

So, I assume that I can take out the entire cash value minus $500. But then what do I do with it? Will I have to put it somewhere else or declare it on my taxes? Is this the best route to take?

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try the 800 no. You really need to consult a tax advisor and the plan admin to determine if you can do a tax free transfer of the entire account balance into a 403(B) annuity of another provider under your plan. This is the only way that you can cancel the loan and may take 6 months before the funds will be moved.

mjb

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I've edited mbozek's link, and it should work now.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Guest Sharron

Doesn't Kathy now also have issues regarding comingling of pre-tax and post-tax monies? After she pays back the defaulted loan, that she paid taxes on, she'll have both within her 403b.

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Guest KathiSL

I do not have a plan administrator...at least not that I know of. I have a retirement plan through the State Teacher's Retirement System STRS here in Califonia. I probably have a plan administrator for that retirement plan. These annuities are supplemental. I got involved with them because the union, our local, along with CTA California Teachers Association and NEA National Teachers Association recommend these. The union sent a guy out the the school and that is how I ended up with these.

Thanks for getting the site for me.

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Forget about fee only financial planners. Call the sales reps from a few of the larger TSA vendors that are approved by your syatem and pose the problem to them. Many of them will have transfer products and techniques that they use regularly in these situations with outstanding and defaulted loans. Select from the ones that give you acceptable choices.

The reason for forgetting about fee only financial planners is that being fee only does not cause them to have either the product or the knowledge needed. You need someone who has done this before.

Some choices might be Reliastar Northern Life, Hartford or T. Rowe Price.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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YOU should ask about the expertise in taxation of retirement plans before retaining a CFP or tax advisor. Also, just calling vendors will not assure that the transfer will not result in taxation-- the vendors specificaly caveat that they are not giving legal or tax advice. This coulrd result in taxation of the transfer that you are trying to avoid. Y get what u pay for - the value of free advice from a vendor in your situation is worth what u pay for it.

mjb

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  • 2 weeks later...
Guest KathiSL

I have thouroughly read through the contracts. I have NO plan administrator, just as I suspected and I have an appointment next week with a financial advisor. I will keep you posted. thanks again!

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Do not just meet with a financial advisor just because he is a financial advisor, meet with him only if he has experience in this particular aspect of 403(B) plans. There are very few financial advisors with much experience in 403(B) plans much less this particular problem.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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  • 4 weeks later...
Guest STLGiant

Kathi, you may want to contact a retirement advisor first--be it fee only (my recommendation vs. a vendor). Determine if that person is a member of the American Society of Pension Actuaries (ASPA) or National Institute of Pension Administrators (NIPA). One of the Chair's of the ASPA 403(B) Committee resides in California and can be reached at TAPC403bLINK@msn.com. If you seek to contact her, she can provide you the type of information you will need and could possibly recommend financial planners and/or vendors that she has worked with to provide you with an individual who is both learned in 403(B)s as well as financial advice--be it tax issues or financial product issues.

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  • 2 months later...
Guest KathiSL

I just wanted to thank everyone for their help with my problem. After seeing several "financial advisors" who didn't seem to help much...I finally picked up the phone and called the IRS. They were extremely helpful citing publications and page numbers that I could then cite back to the annuity company. The bottom line is I CAN rollover my money and the loan will just disappear. I am not looking at where to roll my money over too. You guys were all so helpful and I thank you from the bottom of my heart.

:)

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