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Going back to first principles, the origins of plan loan requirements are based on plan loans that bear no resemblance to today's current proliferation of loans from DC plans, and the idea that the loans should look to what is commercially reasonable (e.g. with respect to interest rates). Leaving my favorite aspect of loan security out of this discussion, the expectation in a commercial loan is that the loan will be repaid. Although most people, including the IRS, treat individual account plan loans as sui generis, examining the myth can be somewhat enlightening. Satisfying the criterion that a loan should not be made unless it is reasonably expected to be repaid has many paths, including having the applicant provide financial information (nobody wants to do that, either on the submission side or the review side) or servicing the loan by payroll deduction (knowing that life and job continuity are uncertain, but it is better than just relying on the good will of the borrower to submit payment and also much easier for loan administration). A prior loan default does need to be considered in a determination that a new loan is likely to be repaid, and the circumstances of the default and the ultimate payment are relevant (see Peter Julia's comments). The backstops against another default are relevant, which brings the loan procedures under scrutiny and some modification might be the ticket to greater comfort about the expectation of repayment. In any event, I think bringing the plan sponsor into the picture to resolve anything other than to make a plan amendment (which would make the plan sponsor a fiduciary -- another favorite subject of mine that tends to be completely disregarded in the area) is the worst thing that can be done. Somebody is a fiduciary with respect to making loans and that person is the one who should determine availability of a new loan after a default if the loan procedures do not cover the circumstances so well that loan issuance is merely ministerial -- which is what a lot of institutional plan loan procedures think they are so the computers can administer the loan program.

I see no problem making 12/31/24 the date of termination. If you get all contributions funded and everyone paid out before then great 2024 is your final year. If you have some distributions that carry into next year you just have a final 5500 requirement because the plan is terminated and no additional contributions will be made for 2025 (other than any 2024 receivables that might be deposited in 2025).

Whether or not it is good or bad to allow another loan to a participant who previously defaulted on a loan but has fully repaid the defaulted loan will be colored by the circumstances. The fact that a participant's loan goes into default may or may not be an indication that the participant is financially irresponsible or is a poor credit risk. We have seen examples where loan repayments are required to be made from payroll deductions and - for reasons beyond the control of the participant (e.g., layoff, LOA, medical leave) - the participant is not receiving a paycheck for several months. Even if the participant could could afford to make loan repayments by writing checks to the plan, non-payroll-based repayments are not allowed and loan goes into default. We have seen examples of payroll errors that led to loans going into default for reasons beyond the control of the participant such as: The payroll provider changes or the payroll system is upgraded and the loan repayments are not properly set up for a participant. By the time the issue is fixed, the loan is defaulted. Payroll takes loan repayments from the participant's paycheck but does not report the loan repayments on the data feed to the recordkeeper who then defaults the loan. We have seen examples where the recordkeeper was partly complicit in the default such as: The recordkeeper did not recognize loan repayments made by the participant because the participant ID in the recordkeeping system does not match the loan repayments reported on the payroll data file, and the loan is defaulted. While not applicable here, the participant had multiple loans and the recordkeeper applied loan repayments in a way that looked as if one loan had an outstanding balance with no repayments being made, and another loan was being paid off prematurely, and the one loan was defaulted. In the above circumstances it seems that the plan should not have defaulted the loan and the service providers should have worked with the plan to reverse the default, but the service providers flatly refused. This obviously is a service provider relationship issue, but the participant was still saddled with a defaulted loan. On the other hand, we have seen examples of participants who go to great lengths to attempt to manipulate a one-loan limit when the participant already has an outstanding loan. (An old trick was to take an available eligible rollover distribution, payoff the loan, take out a new loan and then rollover the distribution.) And then there is the financially irresponsible participant who takes out a loan that they cannot repay. For the plan in question, the fact that the participant repaid the defaulted loan is in part an indication of some level of financial responsibility. It seems punitive that this participant will never be able to take another loan from the plan for the remainder of their employment with the plan sponsor. The easy solution would be for the plan sponsor to have the option to review the facts and circumstances for the participant who repaid the defaulted loan and then either approve or disapprove a new loan. This particular plan sponsor seems reluctant to make any such determination. A possible compromise may be for the loan policy to allow a new loan after the passage of a fixed time period (e.g. a year or two) following the date of repayment of the defaulted loan.

I have a couple of DB plans of sole proprietors, Schedule C. I know the combination of "compensation" for benefit calculation plus contribution can not exceed the Net Schedule C for the year. However, I have seen other DB plans for sole proprietors wherin the contriubtion plus "compensation" exceeds theNet Schedule C. How can this be?

Average compensation is used to determine an individual's 100% of comp 415 limit. If you have a high enough limit when the plan starts, from historical earnings, then having future net after-pension earnings go to zero isn't usually an issue. You just need to manage the timing of funding so that current non-deductible contributions can be deducted in the subsequent year. Depending on SE earnings in future years, you might be playing that time lag game consistently. You've got apples and oranges you're juggling. You need to make sure that (1) minimum required contributions are funded by 9/15 of the following year (or off-calendar equivalent) and (2) the deduction does not exceed the SECA adjusted net SE income and nothing that is not deductible is contributed during the year.

Absolutely. Given the 9/15 drop dead date, we work backwards from there given the situation (solo plan, few employees, larger plan) for the time needed to complete the valuation, establish the trust/custodial account, execute plan documents, draft and review plan documents and come up with our approximate due date for the client to engage us for a prior year effective date. Don't want a sales rep selling a 2023 plan on 9/13/2024!

Sure, but a plan set up as late as October 15 will have some sort of a problem, since the minimum funding was due September 15.

Well the DB plan has a minimum required contribution which may be larger that the Schedule C net income. In that case your income for the year is $0 (probably) and you may have a nondeductible required contribution to the Plan. Depending on when it's deposited you might be able to kick the can into next year by designating different years for MRC and deduction.

Bad actuarial work? Bad accounting work? I have seen it as well, but that doesn't mean it is correct. We recently took over a plan where contribution exceeded the Net Schedule C, which at best means comp = $0. Makes for a very low 415 max. Also, just to be clear, there is also a required adjustment for self-employment taxes that needs to be accounted for.