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Well my brokerage account example was merely to make it plausible to move the bond between the accounts. And we definitely have clients who earmark a brokerage account for employee money and a separate one for employer money, and I see know reason why securities of equal value could not be shifted between them. But now you've made a liar because I said the last one was my last post!

So to keep things simple, Austin 3515, say you have two money sources in a non-safe harbor 401(k), (a) nonelective/"profit sharing" and (b) elective deferral. Plan of course has separation from service or age 59-1/2 distribution restrictions for elective deferral, lets you take nonelective/"profit sharing" at any age as long as you are 100% vested. Pre-loan, participant has $50k elective deferral, $50k nonelective/"profit sharing." Takes a loan for $50k. Suppose the plan document does not address where the loan is taken from, but in operation the recordkeeper in next statement shows the loan is allocated 50/50 between the elective deferral and nonelective/"profit sharing," and shows the mutual fund investments also as allocated 50/50, at least immediately after the loan before any new contributions of either type have been made. Suppose they have always done it this way, and do it that way for all other participant loans. Participant is 100% vested and needs $50k cash for some reason. First answer, "Sorry, you have only $25k in your nonelective/"profit sharing." But then you think about it a little more and say, "Well, tell you what I will do. Just for you, I will swap the half of your loan that is in the nonelective/"profit sharing" into your elective deferral, and the half of the mutual funds in your elective deferral into your nonelective/"profit sharing." Then you can clean out the $50k that will now be in your nonelective/"profit sharing." Is that an example of what you are talking about austin3515? I think most plans are going to have language or rules that require the loan to be allocated across all money types, and so the IRS in such a case could argue that your "swapping" was really just a disguised $25k distribution from the elective deferral account. In the absence of any such language, I can still see the IRS arguing that you are stuck with how the TPA operationally allocated it when the loan was disbursed, but don't know if they would win. Or maybe the above is not what you are asking?

Simple answer: the TPA is wrong (it wasn't a law firm that said this, but that wouldn't make an iota of difference). From Book of Mormon, there is a song that covers this: "You're making things up again, Arnold, you're taking the holy book and adding fiction!". Yup, that's what they are doing. Tell them they are wrong. Ask them to prove they are right (they can't). Larry.

I hate to be a nay-sayer! I think calling a brokerage account a "401(k)" or "match" account is confusing matters. Say your example participant had $10,000 in corporate bonds in Account A and $10,000 invested in mutual funds in Account B. You can call Account A "401(k) account" and Account B "match account" but moving money from Account B to Account A doesn't (for example) remove the vesting requirement and impose age 59-1/2 withdrawal restrictions from that money, or vice versa. If he has $10,000 in Account A as 401(k) money and $10,000 in Account B as match money and takes the loan out from Account A, he can repay it to Account B if he chooses, but that doesn't mean it's match money. It's 401(k) money that's being repaid to an account that happens to be referred to as the "match account". Edit: am I completely misreading what you're suggesting? It's been a long day!

So we are clear about what is involved, each of the 21 plans will be tested for coverage for each year. Of course, the deferral, match, and nonelective elements of those plans must be broken out and tested separately, particularly if there are different eligibility or allocation conditions. For each plan, the numerator will consist of the employees who benefit from that specific plan. The denominator will take into account all nonexcludable employees from all the employers (based on the eligibility conditions of the plan being tested). If a plan does not pass the ratio percentage test, and you need to perform the average benefit test, then for purposes of the average benefit percentage test (only), you will take into account all nonexcludable employees and all plan maintained by the controlled group (even though you cannot permissively aggregate those plans for other purposes. And by the way, if one of those plans has nonelective contributions which require the general nondiscrimination test, you must rerun the nondiscrimination testing taking into account all the nonexcludable employees. You don't need EPCRS to perform the testing correctly. What you do need is time, data, and somebody willing to pay for the work. And if every plan and subplan passes for every year (which it conceivably could if each company has a similar percentage of HCEs and NHCEs), you heave a huge sigh of relief. And if one of the subplans for one of the years does not pass, you have a demographic failure for that plan. Demographic failures can only be corrected under VCP. Note that it is perfectly acceptable to have some plans ADP tested and some safe harbor, so long as each can separately pass coverage. But, if you have HCEs that participate in more than one plan, that complicates your testing. Or, as an alternative, you could consider putting the whole shooting match under VCP and work out more realistic approach. The choice is yours.

Are you making this option available for a short time only to a specific employee? Cause that seems like something that would need BRF testing....and could easily be discriminatory (assuming it's even allowed - which I'm of the mind it's not - but I open to being convinced otherwise).

Our documents typically specific which sources are available for loan. Some say pro-rate across available sources, others restrict it to 100% vested sources, others restrict it to deferral (pre-tax and or Roth), and other still restrict to Non-deferral sources. Other have a hierarchy for loan proceeds sources. I've never heard of the participant getting to choose which sources the loan is taken from - or in this case repaid to. Which is what you seem to be asking, if I'm understanding it correctly. For example: If the loan is from an employer source and the loan is defaulted and the plan allows distributions from ER sources the loan can be offset and the plan does not have to track it. If the loan had been taken from deferrals, depending on the participant's age, offset might not be an option. Then the defaulted loan would have to be tracked until an offset event occurred. Similarly, if a participant is allowed to take a loan from a non-vested source, and then defaults on it - how would you propose the plan account for it? If your scenario is allowed, a person could take a loan from their deferral $, transfer the loan to an unvested match source, then quit. All sorts of problems would ensue.

Austin, you have me lost.... I've only seen a loan investment as a balance to be paid. Or to say another way, the loan investment is not held as a mutual fund or other investment vehicle. So if Participant A had a balance of 20,000 (all sources) and wanted to take a loan of 10,000. All of it was in Fund A. (10,000 in deferral, and 10,000 in match) The loan was prorated across all sources, to be paid back to said sources. Fund A would have 10,000 sold to cash for the loan check. Source wise, I see Fund A as 5,000 in deferral, Fund A as 5,000 in match, and 10,000 in loans. (20,000 total balance) If Participant A wanted to rebalance his investments to 2 new funds, the account would show 5,000 in Fund B, 5,000 in Fund C, and 10,000 in loan investment. Still 20,000 balance. Source wise, it would show Deferrals as 2,500 in Fund B and 2,500 in Fund C. It would show match as 2,500 in Fund B and 2,500 in Fund C, and 10,000 in loan investment. Still 20,000 balance. I don't or wouldn't see any reason to move anything around. Does your recordkeeping system show the loan as invested in actual Funds? In my scenario above, the participant would be able to rebalance and transfer at will. Daily plan, of course.

This is addressed in EPCRS. It's an excess allocation. Somebody got too much match. The correction? Simple. Remove the excess amounts, adjusted for earnings, to a suspense account (usually the forfeiture account under the plan. But as jaa said, these are not "forfeitures"). EPCRS calls this an "unallocated account". The money in the suspense account must be used to offset the next ER contributions. In fact, no ER contributions can come from the ER until that account is exhausted. Excess amounts are disregarded for 415, 402(g), ADP & ACP tests. Section 6.06(2) of EPCRS. Relevant section spoiler'd below.