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Loan Payment Delay


austin3515
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2 hours ago, C. B. Zeller said:

It's not "subsequent" if it's due before the delayed payment.

Going back to my earlier example, and using monthly payments. Payment #10 was originally due April 2020. It is delayed by 1 year under CARES. It is now due April 2021.

According to the amortization schedule, payment #n+1 is due 1 month after payment #n. Therefore, after adjusting as required under CARES 2202(b)(2)(B), payment #11 is due May 2021, #12 is due June 2021, etc. Payment #19, which was originally due January 2021, is now due January 2022. 

Under your interpretation, if I'm understanding correctly, you would say that Payment #19 remains due January 2021. That would be before the due date of payment #10, which is the payment that was originally delayed. This is a logical contradiction, you can't have payment #19 due before payment #10. That would make #19 your actual 10th payment, meaning that the participant did not receive the full 1 year delay afforded under CARES.

5 Year term , Monthly payments, #10 due 4/1/20

#10-18 delayed by a year

#19 is due 1/1/21

#20 on 2/1/ 

#21 on 3/1/21

#22-60 & #10-18 are re amortized as of 4/1/21 as payments #22-69, Final repayment date is 6/10/24  3/1/25 rather than original 6/1/24.

*edited to fix a date

 

 

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Good grief! Since the practical effects won't take place for quite some time, I'm not going to take a lot of time, at this point, worrying about those details. I'm quite sure the IRS will address this in the months to come, and I'll wait to see what they say. If there's no guidance forthcoming within a reasonable amount of time, then I'll worry!

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47 minutes ago, austin3515 said:

"I agree that my interpretation is impractical - but show me how to interpret it otherwise."

When I tried to follow the statute as closely as possible what I found was that the payments only shifted a de minimis amount.  The statute says to reamortize - not to double payments in 12 months.  If you take any reasonable approach at reamortizing you're going to find the payments don't change by much at all. Hence my approach is a very close approximation of what the statute says.  Go ahead and try it, you'll see what I mean.

I agree that the amount is de minimum - but what do you do with payments due in January of next year?  The statute does not say they are deferable - hence they must resume lest the loan go into default.

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33 minutes ago, Belgarath said:

Good grief! Since the practical effects won't take place for quite some time, I'm not going to take a lot of time, at this point, worrying about those details. I'm quite sure the IRS will address this in the months to come, and I'll wait to see what they say. If there's no guidance forthcoming within a reasonable amount of time, then I'll worry!

We have requests pending.  What do we tell the participants?

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That's up to you. I would just tell them that yes, payments for qualifying individuals will be delayed under the CARES Act; yes, interest will accrue for the period that the loan payments are delayed; and that additional IRS guidance is necessary (and expected) to determine exactly how the interest/reamortization schedule will be recalculated once repayments must begin.

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40 minutes ago, MoJo said:

I agree that the amount is de minimum - but what do you do with payments due in January of next year?  The statute does not say they are deferable - hence they must resume lest the loan go into default.

I run my "negative am" schedule through 1/1/2021.  When is the end of the 6 year period?  Amortize the 1/1/2021 balance over the remainder of the 6 year period.

I just think this is so critical.  If the recordkeeping is a nightmare, especially for a small plan without a big fancy recordkeeper, then clients shnould be advised not to allow this.  You can;t just kick the can down the road on this.  You need to know what you're buying when you sign off on the deal.

Austin Powers, CPA, QPA, ERPA

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1 minute ago, austin3515 said:

I just think this is so critical.  If the recordkeeping is a nightmare, especially for a small plan with a big fancy recordkeeper, then clients shnould be advised not to allow this.  You can;t just kick the can down the road on this.  You need to know what you're buying when you sign off on the deal.

I agree completely!

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$50K loan, 5% interest, monthly payments starting 7/1/19.  4/1/20 - 12/1/20 payments delayed.  1/1/21-3/1/21 payments per original schedule.  Balance remaining after 3/1/21 payment re-amortized over remainder of original term plus 9 months.  Monthly payments increase from $943.56 to $982.04 as of 4/1/21.  

CARES Amt Sch.pdf

 

 

 

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Thank you!  The difference is NOTHING.  Nothing compared to the sheer impossiblity of a recordkeeper doing that correctly.  It's just impossible, and the difference is like 4%.  Even if the recordkeeper culd do it, the client cannot be expeted to a) begin payments in January 2021, and then b) increase payments in April  2021 for Joe,  May 2021 for Steve, and June 2021 for Bill.

By the way, my amortization schedule just smooths out RatherBeGolfing's method.

Austin Powers, CPA, QPA, ERPA

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31 minutes ago, austin3515 said:

Thank you!  The difference is NOTHING.  Nothing compared to the sheer impossiblity of a recordkeeper doing that correctly.  It's just impossible, and the difference is like 4%.  Even if the recordkeeper culd do it, the client cannot be expeted to a) begin payments in January 2021, and then b) increase payments in April  2021 for Joe,  May 2021 for Steve, and June 2021 for Bill.

By the way, my amortization schedule just smooths out RatherBeGolfing's method.

I think the only other difference is I added the 9 payments I skipped at the end, and I think you added a full year right?

 

 

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I wasn't paying much attention (and sorta wished I hadn't) but there is no doubt in my mind that the text "any subsequent repayments with respect to any such loan shall be appropriately  adjusted to reflect the delay in the due date under subparagraph (A)..." means...just that.  A payment due Jan 15 2021 may be deferred, as may one due Jan 15 2022, etc.  I agree with C.B. Zeller on all counts.  

The loan will be reamortized when the participant wishes, but not later than one year hence.  And I agree the changes in the payments are pretty small.

Ed Snyder

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30 minutes ago, Bird said:

I wasn't paying much attention (and sorta wished I hadn't) but there is no doubt in my mind that the text "any subsequent repayments with respect to any such loan shall be appropriately  adjusted to reflect the delay in the due date under subparagraph (A)..." means...just that.  A payment due Jan 15 2021 may be deferred, as may one due Jan 15 2022, etc.  I agree with C.B. Zeller on all counts.  

The loan will be reamortized when the participant wishes, but not later than one year hence.  And I agree the changes in the payments are pretty small.

How do you get to the conclusion that a payment due 1/15/21 can be deferred for a year?  The Act says "subsequent repayments" shall be adjusted for the accrued interest.  Not adjust for further deferral....

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19 hours ago, MoJo said:

How do you get to the conclusion that a payment due 1/15/21 can be deferred for a year?  The Act says "subsequent repayments" shall be adjusted for the accrued interest.  Not adjust for further deferral....

I may be guilty of thinking logically, and usually am cautious about that.  But if we're asking how we get to conclusions, how do you conclude that the appropriate adjustments only refer to interest and not timing...?

Ed Snyder

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20 hours ago, austin3515 said:

Why wouldn't you use the whole year? 

The way I looked at it, if you delay payments for a shorter period, you can only add that shorter period to the loan term.  So, if I suspend loan payments for 9 months and re-amortize on 1/1/21, I can only add 9 months to loan term.  

 

 

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23 minutes ago, Bird said:

I may be guilty of thinking logically, and usually am cautious about that.  But if we're asking how we get to conclusions, how do you conclude that the appropriate adjustments only refer to interest and not timing...?

I can read.  Plain language.  It's how I was taught in law school to read statutes.  The Act specifically says "payments due" in 2020.  Says nothing about payments due in 2021.  Words have meaning, and the absence of words has meaning as well.

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17 minutes ago, Bird said:

I may be guilty of thinking logically, and usually am cautious about that.  But if we're asking how we get to conclusions, how do you conclude that the appropriate adjustments only refer to interest and not timing...?

Quote

 

2202(b)(2)(A) if the due date pursuant to subparagraph (B) or (C) of section 72(p)(2) of such Code for any repayment with respect to such loan occurs during the period beginning on the date of the enactment of this Act and ending on December 31, 2020, such due date shall be delayed for 1 year,

2202(b)(2)(B) any subsequent repayments with respect to any such loan shall be appropriately adjusted to reflect the delay in the due date under subparagraph (A) and any interest accruing during such delay

2202(b)(2)(C) in determining the 5-year period and the term of a loan under subparagraph (B) or (C) of section 72(p)(2) of such Code, the period described in subparagraph (A) of this paragraph shall be disregarded.

(A) makes it clear that it applies only to payments between enactment and 12/31/2020.  There is no other way to interpret that.

I interpret subsequent repayments in (B) to mean the subsequent repayment of the delayed payments, adjusted for interest.  It means that rather than re-amortizing the remainder with accrued interest over the original loan term, you get to add the delay to the loan term    If it was meant to apply to other payments, there is no need to limit the period in (A), they could have just said no loan payments for the next 12 months. 

(C) is your exception to the loan term limit for the time you add back to the delay.

 

I agree with @MoJo, plain reading of the statute is clear on which payments may be delayed. It is not logical to read "subsequent repayments" in (B) to mean payments in addition to the payments explicitly limited in (A).  Logically, (B) refers to the subsequent repayment of the delayed payments, allowing you to extend the repayment term for the period of delay, but requiring that you add interest.  In order to not have a conflicting statutory requirements, (C) tells you to ignore the delay added on in (B) for purposes of the maximum term under 72(p).

 

 

 

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31 minutes ago, RatherBeGolfing said:

The way I looked at it, if you delay payments for a shorter period, you can only add that shorter period to the loan term.  So, if I suspend loan payments for 9 months and re-amortize on 1/1/21, I can only add 9 months to loan term

The delay is not between now and 12/31/2020.  The delay is between the date that today's payment was schedyled, and the date 12 months from now on which the payment becomes due.  The payment are "deayed for 1 year."  

The statute goes on to say that that 1 year period does not count towards the 5 year max.

Austin Powers, CPA, QPA, ERPA

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10 minutes ago, austin3515 said:

The delay is not between now and 12/31/2020. 

Correct, but those are the payments that are delayed.  So if the first scheduled payment I delayed was was 4/1/20, that payment has to be repaid 4/1/21.  The last payment that can be delayed for a year would need to be scheduled on or before 12/31/2020.  Since payments post 12/31/20 cannot be delayed, you would pay your regular scheduled payments until your year of delay is up.  In my example, that would be 4/1/21, and that is why I re-amortize as of 4/1/21.  I suppose since I delayed repayment and did not re-amortize until after 12, months, I can add 12 months to the end of the loan, rather than the 9 months of no payments at all.  But if I re-amortize as of 1/1/21, I start paying on that delayed payment after 9 months, and I should only get to add 9 months to the loan term. 

 

 

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I guess I can see  your point.  Here is what  I am doing. Waiting or the IRS to tell us what they expect.  It damn well better be practical.  I would love to hear from anyone who works for one of the major recordkeeepers to learn what they are doing (and what their capabilities are).  No way they can reusme payments on 1/1/2021 and increase payments again in April.  Just not possible.  That's what I think.

Austin Powers, CPA, QPA, ERPA

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1 hour ago, RatherBeGolfing said:

Correct, but those are the payments that are delayed.  So if the first scheduled payment I delayed was was 4/1/20, that payment has to be repaid 4/1/21.  The last payment that can be delayed for a year would need to be scheduled on or before 12/31/2020.  Since payments post 12/31/20 cannot be delayed, you would pay your regular scheduled payments until your year of delay is up.  In my example, that would be 4/1/21, and that is why I re-amortize as of 4/1/21.  I suppose since I delayed repayment and did not re-amortize until after 12, months, I can add 12 months to the end of the loan, rather than the 9 months of no payments at all.  But if I re-amortize as of 1/1/21, I start paying on that delayed payment after 9 months, and I should only get to add 9 months to the loan term. 

You are suggesting that this is a rolling one year deferment for each payment deferred in 2020.  I would read it that way as well - but have no clue how that would be administered.  I listened in to the PSCA Legal and Legislative committee meeting yesterday - on which Groom Law participated -and they said "there was wide latitude" in implementation here, and referenced IRS guidance for a virtually identical provision in the Katrina Relief bill - with that IRS guidance issued in (I believe) 2005 that provided a safe-harbor for implementation of that provision.  I haven't found that guidance - although Groom said they were not aware of anyone who actually followed the safe-harbor.

 

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55 minutes ago, RatherBeGolfing said:

Yea its a mess for sure, especially since we can probably expect the loan delay to be optional even if you adopt CVLs. 

Groom also confirm their opinion that this was indeed optional - based on that same IRS guidance for Katrina relief (and in Groom's opinion - as is their nature - this is a "no-brainer.")

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not200592.113005.end.pdf

Notice 2005-92

Loans discussion starts on page 14 (Section 5)

Safe harbor is found under Section 5 B on page 15

Quote

This notice provides the following safe harbor for satisfying section 103(b)
of KETRA. Under this safe harbor, a qualified employer plan will be treated as
satisfying the requirements of § 72(p) pursuant to section 103(b) of KETRA if a
qualified individual’s obligation to repay a plan loan is suspended under the plan
for any period beginning not earlier than August 25, 2005, and ending not later
than December 31, 2006 (suspension period). The loan repayments must
resume upon the end of the suspension period, and the term of the loan may be
extended by the duration of such suspension period. If a qualified employer plan
suspends loan repayments during the suspension period, the suspension will not
cause the loan to be deemed distributed even if, due solely to the suspension,
the term of the loan is extended beyond five years. Interest accruing during the
suspension period must be added to the remaining principal of the loan. A plan
satisfies these rules if the loan is repaid thereafter by amortization in substantially
level installments over the remaining period of the loan (i.e., five years from the
date of the loan, assuming that the loan is not a principal residence loan, plus the
suspension period). If an employer, under its plan, chooses to permit a
suspension period that is less than the suspension period described above, the
employer is permitted to extend subsequently the suspension period, but not
beyond December 31, 2006.

 

 

 

 

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3 hours ago, MoJo said:

I can read.  Plain language.  It's how I was taught in law school to read statutes.  The Act specifically says "payments due" in 2020.  Says nothing about payments due in 2021.  Words have meaning, and the absence of words has meaning as well.

2202(b)(2)(B) any subsequent repayments with respect to any such loan shall be appropriately adjusted to reflect the delay in the due date under subparagraph (A) and any interest accruing during such delay

I think the word "and" italicized above has critical meaning here.  Subsequent payments are adjusted (by pushing everything forward, IMO), AND the interest accrued is considered when reamortizing.  

I dunno, maybe I'm not paying close enough attention and don't know what we are disputing, but I know how I'm handling it.

Ed Snyder

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