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This is a question for their labor lawyer who can help interpret CA law. Normally, an employee who doesn't show up for work after a few days is no longer employed. The reticence to call the employee terminated may or may not be justified (I'm guessing it is not as he failed to show up for work without any notification) but the lawyer can best answer.

The 1099-R itself will have the answer. If the code is 1M or 7M then it is a "qualified plan loan offset" and it can be rolled over by paying the amount of the offset to an IRA before the individual's tax filing deadline (presumably 7/15). Generally this is what occurs when defaulting on a loan in conjunction with a termination of employment. If the code is 1L then it is a deemed distribution which is not eligible for rollover. If it is code 1 or 7 then it is a loan offset which can be rolled over subject to the usual 60-day deadline. In other words it's too late now.

I repeat. The original post talked about a deemed distribution. But it also mentioned that there was a termination of employment. That means the o p probably got it wrong. And everybody who is contributed to this thread talking about a deemed distribution is contributing to this nonsense.

With a deemed distribution, the participant is taxed as if he received a distribution, but he still owes the plan the borrowed proceeds because the transaction was a loan, not an actual distribution. There is no withholding (which is obvious since this was initially a loan, not a distribution). A deemed distribution under §72(p) is reported on Form 1099-R, as if the plan actually made a distribution. The distribution is coded in Box 7 as either a regular distribution, or a distribution that is a premature distribution, depending on whether the participant is under age 59½.. The 1997 Form 1099-R introduced code “L” which is also included in Box 7 to identify the distribution as a deemed distribution under §72(p). The distribution is reported to the IRS like other distributions, and any later offset of the defaulted loan (including accrued interest) is not reported again at the time of the offset. When the offset later occurs, the account balance will be reduced at that time by treating the offset as an actual distribution. When the plan deems the loan to be a taxable distribution under §72(p), the deemed distribution itself does not trigger basis in the participant's account. It is only when repayments are made on the previously-taxed loan that basis is generated. This coordinates with the reporting rules when the loan receivable is offset, because the unpaid loan balance that was deemed distributed is not reported again at the time of the offset. Since the deemed distribution treatment under §72(p) is solely a tax rule, and is not treated as an actual distribution for other purposes, the deemed distribution does not affect the participant's continued obligation to repay the loan. The loan obligation is not extinguished until the loan is repaid, either by the participant through a resumption of loan payments, or by offset against the participant's accrued benefit. Here is an example of how this works: In 2013, Rita receives a participant loan in the amount of $15,000. Before the loan is fully repaid, Rita defaulted on the loan, resulting in a deemed distribution under §72(p) of $3,000. Rita resumes payments on the loan sometime after the deemed distribution. Her payments following the deemed distribution totalled $3,800, which includes the $3,000 default amount plus interest included in her remaining loan payments. Rita has $3,800 of basis in the plan attributable to her repayment of the previously-taxed portion of the loan. On February 1, 2019, Rita terminates employment and is paid a lump sum distribution of her vested account balance. The amount distributed is $90,000. The taxable portion of Rita's distribution is $86,200, because the basis of $3,800 generated from the repayments on the previously-taxed loan is not includible in gross income under the basis recovery rules. Also note that since the taxable amount of $86,200 is part of an eligible rollover distribution, it is subject to the 20% withholding rules to the extent it is not directly rolled over.

The 1099 indicates the tax liability due. Repaying the loan afterwards creates basis, though, so they won't owe taxes again on the amount when it's later distributed out of the plan in some future year.

Can I do this: Never read another regulation and then complain about the regulations and have someone here explain them all to me?

If it was a ‘loan offset’ then the employee would have extra time to do a rollover of the loan offset amount. However, since you said it is a ‘deemed distribution’ it is not eligible to be rolled over.

These message boards are frequented by employee benefits professionals throughout the US. You are unlikely to obtain a response here from someone who claims to be familiar with California employment laws and regulations.

Too late; he has a distribution which is a fact under the plan rules.

A follow-up on RatherBeGolfing’s explanation about formatting: The 152 pages of the prepublication release became 41 pages in this morning’s Federal Register. Of those 41 pages, only the last three are for rules’ text, and within those about two are for the new rule. But follow RBG’s suggestion and read the explanation of the rulemaking. As I learned when I wrote my article this past weekend, some elements of the new rule are easier to interpret if one reads the agency’s reasoning.

How is the company treating this person on their books? This isn't a retirement law question. This is an employment law question. Have they done other things you would normally do when someone is terminated? Have they given this person a COBRA notice? Have they marked him as no longer employed on their payroll system? Have they notified other benefit providers this person is no longer an employee and not covered under those programs? To me the company has to decide when, if ever, did this person stop being their employee.

Wait... what? Folks are attaching the 8955-SSA to their Form 5500 filing? Yikes.

I don't think for PBGC coverage you can get 22 under the regs as I agree with CB Zeller. The question is do you have to include the 2 eligible employees with 0 benefit (presumably because it is offset by a DC plan?) and it's been a while since I researched but I think the answer is yes you have to include them which would mean you have 26. If your document EXCLUDED the 2 with 0 benefit you don't need to include them but because the document INCLUDES them but they have 0 benefit you still need to count them. It's kind of like the 401(k) plan that has to be audited as a large plan because it has more than 100 (or 120) eligible participants even though many have no account balance because they chose not to defer.

The rule is: "A private-sector qualified defined benefit plan is exempt from PBGC coverage if: It has not covered more than 25 active participants at any time since ERISA was enacted (September 2, 1974), and. It is established and maintained by a “professional service employer.”". Your plan document defines who is an active participant. If at any point you had more than 25, you are covered by PBGC. It doesn't really matter how many you have at the beginning of the year, or the end of the year. It is an "any day" test. Can you provide more detail around, "By some definitions there are 26 actives, 24 actives, and 22 actives"?

I think all plan participants (and beneficiaries) have to fall into one of 3 categories: active participants, retired receiving benefits, and terminated but entitled to future benefits. Any participant who is neither retired and receiving benefits, nor terminated and entitled to future vested benefits, would have to be an active participant. If there is any doubt, request a coverage determination from the PBGC.

All participants are entitled to safe harbor minimum under 416 if the plan is Top Heavy. If you are are a safe harbor match or non elective plan whose only employer allocation is the safe harbor contribution you are deemed not top heavy.

Griswold - I keep a repository of preapproved plan documents (you never know when you will need one), and I have one 2002 Citistreet Associates LLC Defined Contribution Plan BPD. No guarantee that it is really what you are looking for, but I have attached it for reference. CitiStreet Associates LLC 2002 Defined Contribution Plan Prototype Basic Plan Document.pdf

In a statement from the DOL, among other things, they had this to say: “The new safe harbor is an additional method of delivery and does not substantively change the 2002 safe harbor.” Nice that it takes them 150 pages to issue a regulation that doesn’t "substantively" change the existing one. Our tax dollars at work! Now, to be fair, I haven't read it, so maybe it provides more help than I expect. Since my expectations are very low, that's possible...