Leaderboard

The more I thought about this I came up with this scenario. Let's say the kids were the beneficiaries on the 401k plan. The participant sets up the IRA and affirmatively notes his wife as the beneficiary. Then, he signs the distribution AND submits it for processing. And then he dies before it was processed. To me, it would be a sin to deny him his wishes which he not only expressed but went so far as to EXECUTE those wishes. I just cannot fathom a scenario where those wishes would be denied.

This made my day. Probably shouldn't have laughed as hard as I did since it is a serious problem, but damn that was funny! Now quick, somebody make a meme with kittens asking "can I haz 401k?"

This one might win the weirdest of 2016 award!.

I don't want to look the wrong thing up. is that 401(m)(11)((B)(ell) or 401(m)(11)((B)(eye) or 401(m)(11)((B)(one)?

I saw this happen on a large scale with a group of merger participants rolling from one provider to another--$50k worth of loans. The old provider said they would default them if they weren't paid back before the rollover & the Employees obviously couldn't pay. The new owners paid the old provider the $50k to "pay off" the loans & complete the rollovers. The Participants borrowed their own money & the loans are still being repaid, so in my opinion that $50k was either a donation to the old provider's bottom line or an unlawful Employer contribution to the Participant's account. Luckily, neither was my plan or client. It was a major provider holding the loans hostage too, so I imagine they're doing this 100 times a year... In this OP's case, if that money wasn't a payroll deduction from the owner/employee's check, it smells like an Employer contribution. What kind of contribution is the question

The analogy is inapt. DRO's are "special" (death is not). The question, as has been stated above by at least one participant in this thread, is when did the right to a distribution congeal? I would venture to say it is when all acts of decision by the participant and the plan's representative have been completed.

I was thinking the same as Mojo. The loan payments need to be counted as income to the participant and the company needs to re-classify their accounting. I agree this is not the correct way to handle a loan repayment. The funds were used to cover payroll not accumulate any benefits. It still should not have been done this way. A general purpose loan can be used for any purpose that the participant chooses assuming the trustee has signed off on the loan. As any loan default should become taxable to the participant that took the loan. Not sure what that point is??

Ok, why the difference? Let us assume, for the sake of simplicity, that the match is dollar for dollar up to 6% of pay. Let us further assume that the $150.00 extra deferral, plus the :normal" $50.00 for a total of $200.00 for one payroll only does not exceed 6% of pay. If you do it end of year, she gets her full match. If you do it payroll by payroll, she still gets the same match. Why should she be entitled to an additional $150.00 just because the match is calculated per payroll? You are doing self-correction of an error, so the fact that it is per payroll shouldn't preclude the same ultimate result as per year, I don't think... As you can see, I'm struggling with a proper interpretation in this issue. The conservative method would seem to be to take the Rev. Proc. language extremely literally, and give the extra $150.00 no matter what. And that's probably what we'll recommend. But I would be very interested in any thoughts from anyone.

Covering business expenses or buying a bass boat - what's the difference? If the employer goes out of business, the loan FOR EITHER would probably become due and taxable. Research "ROBS" plans and see what kind of crazy stuff people have found to do with their 401(k) balances..... Good , bad or otherwise, we've given participants the power to determine what they do with plan loan proceeds.

If no SE income, there can be no deferral!

I guess I'm missing something here. If I'm reading it correctly: 1) The "participant" took a plan loan. 2) The participant loaned the same amount to the employer. 3) The employer paid the loan back to the participant, but did so by directly making payments on the participant's loan back to the plan. The participant would have "income" only to the extent of the interest paid by the employer on the loan it received from the participant in step 2 above, with no corresponding deduction for the interest the participant incurred his loan from the plan. While not recommended, I see no problem in the employer satisfying it's obligation to the participant by making payments to the plan in satisfaction of his loan to the plan. It's a "tracing" issue, and I believe the only tax consequence (assuming the participant loan was "compliant") is the interest the employer paid on it's loan, inuring to the benefit of the participant.

I am sorry about the situation, but grateful for the giggle...it's been a tough few weeks and just imagining "can I haz 401k?" cat meme gives me a giggle. I am truly grateful! (and do think this should count as weirdest of 2016 so far!)

You don't want to do that and make money that was never deducted taxable. It's a case where you just have to keep moving up the chain until you find someone who understands the situation. The best route IMO is to say the "plan" never existed b/c there was no sponsor. I assume they used the guy's SSN...that's a tiny flag in a sea of red flags showing that not only was the guy a moron, but that the brokerage firm was at fault as well for not insisting he get his own EIN if he in fact was a sole proprietor. When you show them they are at fault they should pay more attention.

if you are a pirate with a patch, I would go with 'aye' instead of 'eye' if you are a Detroit Lion fan I'm not sure you can go with 'won' and if you work in pensions, especially with the 5500 deadlines approaching and how well clients get you data, then 'ell' is the obvious answer.

I suspect it says something like "beneficiary is entitled to the vested account balance," and account balance is defined, explicitly or implicitly, to mean money not paid out plus/minus subsequent earnings/losses. In any event, if plan administrator knew the p had died before the distribution and it was possible to stop it, I'd advise that it be stopped. Thereafter, whether to pay it to one or the other or interplead it would depend upon the precision of the plan language and the amount involved.

I think the best of this worst case scenario would be - 1 Retro amend plan for in-service distribution at 59.5 2 Issue 1099-R for 2015 distribution. 3 Pay taxes on the distribution (file amended tax return if necessary) I guess there is some crazy argument that might be constructed as it was a prohibited loan to the company and pay the excise tax for 2015 and 2016 and future years if not corrected by the end of 2016 but that seems a very slippery slope given that no promissory note between the company and plan likely to exist.

I think it's funny that they determined he had the authority to open the illegal account and deposit the illegal money but doesn't have the authority to distribute the illegal money because that would be illegal.

If there is no valid company (of which he purports to be sole prop), then there is no valid employer. Hence, no valid plan.

Well I guess you could argue he is a sole proprietor with $0 income and has a 415© limit of $0 which he has exceeded with the deposit of $X dollars used to open the account.

I disagree with jpod. Distribution is irrelevant, and due to errors, I've seen the "processing" of distributions take upwards of a year and a half to actually get a check cut.. The question is at what point in time did the participant's request become an obligation of the plan to distribute. How long it takes a service provider (or an employer) to actually process the paperwork (delaying the distribution) is arbitrary, and has no effect on the ERISA right to receive the distribution. At the latest, I would suggest that when the appropriate plan fiduciary "approves" the distribution, the right to receive it is fixed.

Did the guys sign the plan document on behalf of large company? Because he likely has no authority to execute a plan document meaning there is no valid document to begin with, with or without an IRS DL submission.

What does "open up a 401(k) plan" mean? Did he complete plan documents and open a trust account? Or just open up an account he told the broker was a "401(k) account"? Does his company have a plan and allows SDB accounts? What kind of shady or professionally derelict brokerage office would open up such an account on the say-so of a guy coming in off the street? (Or even just on the say-so of a current client?)

I'll put the question back to you - what are you (or anyone else) gonna do to enforce an election of 100%? You can't. So I think it's ok to interpret that with a caveat of "to the extent administratively feasible." I get it - we can all obsess over details. But this isn't an issue.

BG5150 even an enhanced match has to be capped at 6% otherwise it fails ACP safe harbor dang you make me look it up code section 401(m)(11)((B)(I) match may not be made in excess of 6% I think my former teacher would give you twenty lashes with a wet noodle for that.

I thought the 4%/6% limits were for discretionary match when added to the SHM.

Of course. That's what you're doing, in effect. You're deferring 100% of the cash that the participant would've otherwise received had they not elected to defer it to the plan. FICA is coming out anyway. When you defer pretax, this will reduce your Federal Income Tax withholding and [state Income Tax withholding (in most instances)]. So, that is a non-issue (you're overthinking it ). Good Luck!

From what I've read, 7% would be considered a discriminatory factor in favor of the highly compensated. It could be interpreted as being too large a hurdle for lower paid employees and, therefore, a barrier to participation. Now, if it's a company where everyone makes tons of money, it's probably not an issue.

I guess my age is showing. To me the concept of charging the participant for plan expenses is the "new and different" way of doing things. I miss the days when employers expected to pay those expenses!