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Hmmm. I know of at LEAST three large recordkeepers that have "funny" policies regarding loan collateral. In my mind (and I believe this has been confirmed to be the "right" mind by the comments above - and the appropriate regulatory bodies) the only collateral necessary is the NOTE held as a plan asset (usually within the account of the borrower). There is that little "pesky" requirement that you can only borrow 50% of your account balance - BUT THAT IS NOT A COLLATERAL REQUIREMENT - it is simply a restriction on the amount of the account that is loanable. Indeed, one of those recordkeeper goes so far as to NOT loan the participant money from their own account - but rather loan it to the participant from the recordkeepers OWN FUNDS - requiring a like amount to invested in the plan's "traditional GIC" account (as "collateral"), where it's locked up for TEN YEARS (for a max 5 year loan). Not saying who that recordkeeper is - but one would think educated participant's (like "teachers" - and the fiduciaries overseeing such plans) would find such provisions objectionable, but I see it often in "non-profit" and educational institution plans....

ESOPGuy, Philosophy is not a pre-requisite for 401k compliance

If you want to get academic about it the whole collateral idea is silly. Even in a balance forward plan the loan is self collateralizing. If you default on the loan your account balance goes down by the amount of the loan defaulted. The plan and no other participant can suffer a loss. In a daily plan it is all the more obvious no one is hurt. The only possible exception to this would be those very rare balance forward plans that had the loans as part of a general bond/fixed income fund and thus the loan was a general asset of anyone in the plan. But those were so rare back in the day of balance forward plans and now my guess next to none exist. To use an extreme example that violates the rules. If I have a $10,000 account balance and I got a $10,000 loan some how then defaulted how would anyone suffer for the lack of collateral? My account balance would go to zero the same as if I had just gotten an in-service distribution of my whole balance.

Not discussing the relative merits of one vs. the other, as there are folks here far better qualified to do so, but a cash balance plan IS a defined benefit plan.

I don't think the law change affects other deadlines. Which means that your scenario could happen. Who actually reads the SARs anyway? For a DB plan, how much attention is paid to the Annual Funding Notices? And don't get me started about all those "privacy notices"! Too bad the government cannot effectively require identity thieves and hackers to provide privacy notices. Now that would be useful!

It is not a good idea. It adds confusion to complexity.

ACA 1411 certifications FAQs by CMS 09-21-15_14245992(1).PDF CMS announced today they will start issuing section 1411 certifications with respect to the 2016 enrollments and provided the address for employer appeals. Conveniently they answered the question I posited above that their failure to issue certifications with respect to 2015 subsidies does not relieve the employer from 2015 penalties under 4980H.

The short answer is "yes". An ESOP can buy more shares even if 100% owned. The hard issues here are the fiduciary issues. You can't make any of these changes for the benefit of the corporation. You need to be able to show that the CURRENT participants are benefiting in order for the fiduciaries to be able to sign off on of this. The DOL takes the position the participants need to be better off. They do not count future participants. You will want to study up on this in regards to the loan refi: http://www.dol.gov/ebsa/regs/fab_2002-1.html This talks about how you might want to give "sweeteners" to the current participants to show that it is in their best interests-- in regards to the loan refi. Such as better diversification rights, more match in the 401(k) plan.... I have also seen where the plan was required to stop using the S corp earnings distributions (dividends) to pay the loan and had to leave the cash in the plan for the participant's benefit as the "sweetener". By the way other ideas to think about is you could seek to have the loan principle written down to a level that doesn't cause an issue with 415. This would be most easily down if the loan is an internal loan with the company. Not sure why you want to increase the amount of the loan here as that would seem to work against what your primary problem is but I guess if the term of the loan is long enough it doesn't matter. Lastly, there is growing debate on how long you can go out with the term of an ESOP loan. We are seeing more and more 40 to 50 year loans. There is growing concern that is never a sound fiduciary decision. For example since this is a refinance and let's say you are going from 10 years to 50 years (to be extreme) a current participant is going from could realistically work the whole time to share in every share release to that no longer being true. Is such a change in terms ever really in the current participant's best interests? I would strongly recommend you get an ERISA attorney that knows ESOPs and not just any ERISA attorney before you do this. (edit was a few changes to make more readable)

There are a lot of (potentially) significant issues in a scenario such as this - and unfortunately THEY SHOULD HAVE BEEN ADDRESSED PRIOR TO THE SALE. Ok, I'll get off my soapbox now (I'm a "recovering" ERISA attorney and sometimes the "beast" resurfaces). The sold employer CAN (and should) have it's own plan. That can be accomplished in a couple of ways. I usually recommend a "spin off" of the portion the original plan that contained benefits for the sold employees into a plan maintained by the sold employer. Not having been involve PRIOR to the sale may cause problems to exist - including, has the structure of the sale resulted in a distributeable event to the those participants? Will the plan sponsor cooperate? What has been communicated to the employees? Does a spin off change the demographics of the existing plan such that there are pricing considerations for the recordkeeper? Are salary deferrals continuing for "sold" employees and if so, where are they going, and who is responsible (as a fiduciary) for those contributions/balance? There are many other issues too numerous for a post here at BenefitsLink.com If the sold employer starts a "new" plan without capturing the assets from the old plan, that too has pricing implication for the sold employers plan (startups are expensive to recordkeeper/employer/employees - until sufficient assets exist to support the plan (based on the business model of the service providers). Bottom line is: The plan sponsor(s) need to consult with competent counsel to discuss and evaluate the (remaining) options....