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Repayment of 0% loan years after made


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I looked to see if there was another thread on this topic and did not find one. So here goes.

Any thoughts or ideas on this one and any cite I can take to management.

This is a small ESOP.

PYE is 2/28

In the PYE 2009 the company had to put more money into the plan to pay distributions than they could deduct. The excess was reclassified as a 0% loan to the plan from the employer. Their ERISA attorney signed off on the idea, and made up the needed loan paperwork. There is a PT exemption for these kinds of loans. Although in my mind it is implied, but not actually stated these are suppose to be short term loans to cover cash flow needs for expenses.

The loan doesn’t get paid back until 12/2010. So at 2/28/2009 and 2/28/2010 we put the shares related to the loan in suspense like you would if you had an Exempt Loan.

There was cash in the plan as of 2/28/2010 that could have paid off the loan. They did not pay the loan off even though they could have at that point.

They put a contribution in the plan for 2/28/2011 pye in October 2010.

So now the question is how to allocate the share release.

It seems like there would be three methods.

1) Allocate on the current year’s contribution like you would tend to do with an Exempt Loan. In fact the document demands only current and/or prior year contributions less previous loan payments be used to pay an Exempt Loan.

2) Use some combination of cash on hand (less distribution from beg bal) plus current contribution.

3) Use the cash that was on hand less the distributions like #2 with no reference to the current year contribution.

Maybe there is a combination of the #1 and #2 I am not thinking through.

My guess the answer is-- like all documents this one gives the Administrator broad discretion to decide what to do when the document and/or law doesn’t give a specific answer. And as long as that discretion is used in a reasonable manner and doesn’t discriminate the Administrator is fine. And for what it is worth I favor #1 above.

But I wouldn’t mind a sounding board on this one

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