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This is a good example of why I've always been opposed to rehiring anyone at any time. 😁

No, because it isn't an eligible rollover distribution. However, 10% withholding applies, but they can elect out of it if they wish.

Of course there should be a loan policy in place, so either they didn't have one, which is a problem, or they didn't follow it, which is a different problem. Too many people without a clue doing plan stuff, sigh. As far as getting their "system" to stop sending reminders and charging fees, it might be possible to just tell them the loans are paid off. Of course when they get loan payments the system will freak out and try to treat them as contributions, so I don't know. Best solution is to move the money elsewhere, but I get it, clients are strangely loyal to their brokers even when they prove their incompetence.

An earlier BenefitsLink discussion: https://benefitslink.com/boards/index.php?/topic/64990-stop-my-loan-payments/

They should consult the service agreement they have with the service. And/or they should consult with their attorney how to accomplish the severance of service.

I would generally agree with Lou S. Here, the methodology for the loan is important. If the usual rate ever used by the plan was prime +1, then I would have a problem with a loan charging a 1% interest rate. I know that prime is very low, but if it were done on the prime plus 1 basis before, it still would be tough to justify the change to a mere 1%. I am also aware that if the plan had other participants and charged them prime plus 1 while allowing the owners to pay a mere 1$, there would at least be a problem with discrimination in benefits, rights and features in addition to the loan being treated as a prohibited transaction and currently taxable under Code Section 72(p).

If you could show it was a commercially available loan rate at the time. Otherwise it would probably be deemed an unreasonable rate of interest. As an example, perhaps if they had an offer for 0.9% financing on a new car loan but instead chose to borrow the money from the Plan for 1% instead the IRS might view that as a reasonable rate of interest.

You are correct, they are ineligible. Only a 501(c)(3) or a public school can have a 403(b}.

So people understand where this is coming from, the IRS told document providers in May of 2020 that discretionary match formulas had to spell out their allocation method, in accordance with the regulation mentioned earlier in this thread. As we discussed the issue with the IRS, this would take away the flexibility, for example, to have different rates of match for different employee groups, or to choose operationally the period used to compute the match. After protests from document providers and the American Retirement Association (and others), the IRS ultimately relented. The settlement required that language appear in the adoption agreement. Originally, that language was to read: To the extent a Discretionary Matching Contribution applies and the Employer makes such matching contribution to the Plan, the Employer must provide the Plan Administrator and Trustee, if applicable, written instructions describing (1) the matching contribution formula, (2) the computation period(s) to which the matching contribution formula applies, and (3) if applicable, a description of each business location or business classification subject to separate Matching Contribution formulas. A summary notice of these written instructions will also be provided to the participants. The instructions and participant notice must be provided no later than the time the Matching Contribution is made to the Plan. This language ended up being modified in early June, allowing for a communication (as opposed to a "notice") to the participants to be delivered no later than 60 days after the date of the last matching contribution. The notice only needs to be given for years the employer actually makes the discretionary matching contribution. There likely is slight modification in each provider's document, but the substance should be similar. The IRS made it clear that this settlement applies to the third restatement cycle. We may see the end of flexible allocation of discretionary contributions in the fourth restatement cycle, but that's down the road. The FIS approach was to offer two different discretionary matching formulas. One, what we called a "flexible discretionary match," is wide open on allocation methodology. You can have tiered matches. You can choose each year the period to be used in computing the match and whether you true it up. You can have different formulas for different groups. But the price of that flexibility is you have to give the notice. The other, what we called a "rigid discretionary match," specifies the computation period and allocates according to a single matching formula applicable to all participants benefiting from the match. You can change the limits on match and the match rate from year to year, but what you choose must apply universally for that year. The rigid match (which is still much more flexible than a fixed match) does not require a communication to participants. To the concern "what's the point of another notice," I understand and sympathize. But the IRS has broad latitude in issuing opinion letters for preapproved plans, and this was their decision. I appreciate their willingness to compromise on this issue. I am writing this as a private attorney, and not as a representative of FIS. The opinions expressed are my own. (That said, I do work as a contractor with FIS and am proud to be a part of their Relius document team. I participated in the design of their documents, including in handling this issue.)