Leaderboard

Just thinking out loud here because we only have some pieces of information to go on. IF the plan requires that a loan balance be paid off by your vested account balance upon termination, they would apply your non-loan assets to pay off your loan. Basically, if you owe $5,000 on your loan at termination, they apply $5,000 from your vested balance to pay the loan off. You are then issued a 1099-R for the $5,000 because it was "distributed" in order to satisfy your loan obligation. You don't get an actual check for the $5,000 because it was used to pay off the loan (and you already have the funds from the loan). This would be reported on the 1099-R as a code 1 if you are under 59 1/2, without the extra L that would be used for a loan default.. The "we can do it when we want" statements are odd though, I'm pretty sure you were talking to a call center.

Last time I took over a fully insured DB plan around 2007 or so, the client actually had an email from the "TPA" telling them that they did not need a plan document, just the policies and that this saved them a lot of money. This "TPA" was an ASPPA member (but not credentialed as I recall). I only mention this to suggest that a plan document may not, in fact, exist. You can't really address anything about benefits, nondiscrimination, etc. without a plan document. Unless the plan document says the crediting rate is the policy rate, I don't think you can assume this. Arguably without a document the plan doesn't even exist. Probably zero chance of getting documents from IRS even in the unlikely event it was submitted. Remember their "we are in the process of perfecting our records" letters? In my experience you are giving much more credit to the insurers than is due. Some insurers did offer fully insured DB plans with bundled services where the insurance co would determine the benefits and the policy amounts needed to guarantee the benefits. If this is a CB/PS combo from the mid 2000s it is almost certainly a roll-your-own deal put together by the insurance agent and the policies sold would have the normal disclaimer that the insurer is merely issuing a policy and their only responsibility is to follow the terms of the contract, and that they make no representations regarding the use of the policy in any plan or its tax treatment. Time for the client to lawyer up I'm afraid. This may not be salvageable.

There has been some really bad advice happening here, and I hope you were NOT the one providing it. When A adopted B's plan they already violated the 12 month rule. If any of A's employees were paid out due to the acquisition of C and without a termination of B's plan and/or without actual termination from A, then there is an impermissible distribution. If B's plan is not terminated, then a spin-off is indicated. You already have a mess and you need to get an ERISA attorney involved.

I think the ABC company got it right. Your loan would've been defaulted at the end of the calendar quarter following the calendar quarter in which the first payment was missed (or you terminated employment and failed to pay the loan current). So, you terminated employment in the quarter ending September 30th. The end of the following quarter would've been December 31st. No payment by that time would've become a taxable event shortly afterward (in 2014). That's a typically process. When the loan default date is the last day of a taxable year, then it's only reasonable that there is a delay. As a practical matter, many last week of December payrolls are actually processed in early January. So, the recordkeeper would have no confirmation as to whether or not a payment was actually made by December 31st until December 31st has actually passed. If it was your desire to have this amount taxed in 2013, you could've made a distribution request have termination to have your loan treated as an offset distribution. You did not have to wait for the ABC company to act. Good Luck!

It is one of those "it depends" answers... In order to use the DOL calculator, you also have to file under VFCP. Otherwise, your lost earnings should be the 1) actual return participant would have earned, or 2) highest rate of return during the period, allocated to all affected participants. Basically, if you use the VFCP calculator and and dont file under VFCP, DOL can come in and say that your correction was insufficient. I believe it is still OK for IRS purposes though. There was a really good article in the Journal of Pension Benefits a few years back that detailed the different steps per the regs. (EDIT: it was the October 2012 issue. "How Much Goes Into Correcting Late Deposits?" by Frank Castrofilippo) The calculator is the easiest step, you just have to go the extra mile with VFCP.

I should have added on my comments my brain simply doesn't work very well on non-calendar year plans, much less if the plan year and fiscal year don't match.