Leaderboard

Are you sure there was a distribution from Plan Origin, followed by a rollover contribution into Plan Destination? Or might there have been a plan-to-plan transfer of assets and obligations? Also, Plan Destination’s administrator and trustee might evaluate whether the attorney had (and perhaps still might have) a charging lien regarding some claim the attorney might have helped perfect. The plan fiduciary should get its advice from a lawyer who is (i) independent of the to-be-paid attorney, and (ii) competent to spot and evaluate the many exclusive-benefit, prohibited-transaction, and other ERISA title I (if it governs either plan) and Internal Revenue Code issues. This is no advice to anyone. I mention it only as a possible variation, in some circumstances, against the general principle that an employee-benefit plan doesn’t pay another plan’s expenses.

Without knowing all the intricate details of plan language, investments, procedures, etc., etc... In general terms, based on what you've said, I would allow the distributions. VCP approval could take a long time, and it isn't fair to these participants to suffer for an employer error. If you assume the IRS approves, and again, based on what you've said, I assume they will, then you are good anyway. If they don't approve, either you will have overpaid them what I assume will be an insignificant amount, or if the IRS says you have to deposit more for some reason, then you make an additional payment.

Here is the relevant text from the February 23, 2017 IRS memo: "(iv) If the summary of information reviewed in Step 2(ii) is complete and consistent but you find employees who have received more than 2 hardship distributions in a plan year, then, in the absence of an adequate explanation for the multiple distributions and with managerial approval, you may ask for source documents from the employer or third-party administrator to substantiate the distributions. Examples of an adequate explanation include follow-up medical or funeral expenses or tuition on a quarterly school calendar." In this case, again it sounds like an overreach where the author takes a suggested review step (that requires IRS managerial approval to take) and presented it as a requirement. We already have enough actual requirements to consider without making up more.

As I recall, the use of 417 rates is to provide a minimum PVAB. Is that what your research shows?

I look at a calendar, and go out 183 days...

The Internal Revenue Manual is a set of directions and instructions addressed to IRS employees. Nothing in the Manual is a rule that applies to a taxpayer. And nothing the Internal Revenue Service or the Treasury department writes can undo an Act of Congress.

Given the circumstances and the correction reference from Belgarath, it sounds like the participant cannot catch-up the missed payments by making a lump sum payment which leaves them with re-amortizing the loan over the remaining term of the loan. This is consistent with the requirement that loans need to be paid using a level amortization. I think you have sufficient information to tell the recordkeeper that the part of their proposed correction to make interest-only payments is not appropriate. I don't think there is an issue of the loan exceeding the $50,000 limit. The limit is applicable only to the principal amount. The additional amount is due to interest which will be factored into each repayment as part of the re-amortization.