I am a TPA that received a request from a Financial Advisor asking if participant could get a 30 year principal residence loan (allowed in plan) under the following circumstances:

Divorce situation - spouse doesn't want a QDRO, but he needs the money to pay his (ex?)spouse.

Can't afford to keep his home unless he receives a loan or hardship distribution

Hardships use the Safe Harbor criteria so states 'Costs directly related to the purchase of a principal residence for the Employee (excluding mortgage payments)'.

The loan policy states that the loan can be for 30 years if proceeds are used to acquire a dwelling unit which within a reasonable time will be used as your principal residence. 

He already lives in the house, so I don't think he can do the 30 year loan as he is not acquiring the residence.  So it appears that the maximum loan could be only 5 years.

I don't see a way for him to do either a 30 year loan or a hardship distribution.  Is that an accurate interpretation based upon this information?

Looks like the spouse's lawyer is smarter is getting her the money without a QDRO so she doesn't have to pay taxes on it, but that's outside of my hands.

I've asked for more information to see if there are any other options, such as distribution from Rollover source and/or in-service at age 59.5.  But the Financial Advisor may have already looked into these options.

Thank you in advance for any thoughts/options. 

A participant took a cash  distribution from their 401(k) plan mid year 2017.  The participant accounts are held in individual brokerage accounts, and even though the broker has been working with 401(k) accounts for years, they did not withhold the 20% tax.  They did not consult with us, and paid the entire vested balance to the participant.  The withholding is almost 10,000.  We are supposed to do a 1099R for this.  Who is responsible for paying the tax that was not withheld?  The participant has already spent the cash and part of the distribution represented an unpaid loan to boot.   Should we do the 1099R showing NO withholding or  with the correct 20% amount, and tell the brokerage firm  they owe the tax to the employer?  I need suggestions, etc on who pays the taxes - or if the participant is just liable for them based on their total tax liability for 2017.  

For all of you and your families and friends, wishing you all a Happy Holiday Season - drive carefully, and enjoy!

Hi folks,

I've been reading these boards for a while, but this is my first post.

Client has a DB plan (professional 100% owner and one other employee, not subject to PBGC).

The owner reached age 70.5 in 2016 and received his first RMD in 2017 slightly before the required beginning date of April 1.  The payment was a year's worth of accrued benefit (normal DB RMD paid annually).  Per 1.401(a)(9)-6, A-1(c)(1),  if the plan was ongoing, his next annual distribution should be made around that same date in 2018.

However, he terminated the plan in 2017 and is an electing a lump sum at plan termination.  Since it is the year of termination, I believe he can take his 2017 RMD via the account balance method using his lump sum as the balance.  His employee only recently received her distribution materials and may not have made her payment election before the end of 2017, so we don't know the cost to the plan for her benefit yet (could be her calculated lump sum or an annuity contract purchase at an as-yet unknown price).  Barring a large gain in plan assets at the last minute, the plan will not have enough assets to pay the owner's full lump sum, so he will forego some of it to the extent necessary.  He does not want to make an additional contribution to allow the plan to pay his full amount.  Therefore, we likely will not be able to calculate his RMD before the end of 2017 since the "account balance" is not yet known.

Question: Does the fact that we are using the account balance method for the 2017 RMD shift the payment due date to the end of 2017, or would it still be considered timely if he takes it by March of 2018 (one year after the first annual RMD was paid)?  We're aware that the RMD should be excluded from any rollover to an IRA.

403b Plan moves from an insurance company to a mutual fund company.

There is a ton of money in the non-elective source.  Is there any way I can preserve at least the existing money for hardship distributions?

Filed a very basic VCP on a SIMPLE-IRA plan in June. Received an acknowledgement letter in mid-AUGUST. Called twice recently to check status. In spite of the IRS voice mail promising a call-back within 2-3 business days, it took 7 business days, but at least they did call. I didn't speak to the person - they left me a voice mail, but it has NOT YET BEEN ASSIGNED TO A REVIEWER. It will be "at least several weeks" before it is even assigned.

Just an fyi to prepare yourself to hurry up and wait...

Taking over a plan that I see offers installment payments.  In an effort to simplify, I recommend that they remove that option... and then find that one of the owners started taking an installment series in 2017.

So... does that mean I can't actually remove the provision from the plan?

A plan participant was able to write a check to his plan account on his own.  Not deferral, not through payroll, etc.

The plan does not allow for post tax contributions.  How to correct?

Hi, everyone. I have an issue, and I hope you all can help. It is long and complicated, but I appreciate any clarification to help us get this resolved. In 2014, my husband requested a 401K loan from his company. It was approved, and repayment terms were set. We got the money and payments were held every paycheck until January of this year. During this time, my husband's job title and pay changed often, so we never really paid attention to the changes in pay. After the first of the year, I did notice his loan balance wasn't decreasing, so I attempted to contact his benefits person through email and phone various times with no response. In July, we received an envelope with several letters from MassMutual (who has 401K and loan) stating the checks they sent us were never cashed. I had no checks and no clue what this was about. My husband called and was informed his loan was in default and all checks mailed to them from his company had been returned. Upon further investigation, he previous benefits lady had allowed the loan to default but continued to mail the payments to MassMutual, who then returned every payment back to the employer. This went on for over a year, and we never heard a single thing about it from either party. Between the two, they have "found" about 12 checks (out of approx. 26) and reissued them to us. MM told my husband they knew it wasn't his fault and would work with us to reinstate repayment. This was 2 months ago. Yesterday, I received a letter stating the loan was basically refinanced, and for a lovely payment of $900 a month for 2 years, it would be paid. It also said we could default, get a 1099-R and basically call it done. First, $900 is ridiculous and absolutely not a possibility. Second, I distinctly remember getting a 1099-R and paying taxes on the loan amount back in 2014. I verified this with my records, and we paid taxes on the full amount on 2014 taxes. I know we hold some responsibility. I know he was young and dumb to do this to begin with. However, I need HELP!!!!  If it was in fact a loan, should we have even gotten the 1099-R? Since we did, can we change it to a early withdrawal and get what money was paid back to the "loan" refunded? Do I need to contact a lawyer, and if so, what specialty?

Can I please just have everyone agree with this statement so that I can link to it to show the non-believers in my office?

The restriction on the number of allocation rates in a cross-tested plan was specifically dictated by LRM #94 and was solely applicable to get a prototype document approved during the EGTRRA cycle.  This has been removed for the PPA cycle.  And nothing in the 401(a)(4) regulations themselves even make mention of this, thus meaning PPA documents are not limited to the number of groups or rates available, nor are plans operating under them expected to comply with such a restriction when running 401(a)(4) tests.

Thanks

--bri

Company sponsors an unfunded severance plan subject to ERISA. They impose a 120-day limit on filing claims. (120 days is calculated from date employee receives notice that he/she won't receive benefit or notice of the amt of his/her benefits.) 

DOL regulations don't specifically address this, but they do say that the claims procedures can't inhibit or hamper the filing of claims.  (The example they give for this is that you can't charge a fee for processing claims.)

Has anyone thought about whether imposing a time limit on filing claims is reasonable?

Thanks!

Hello -

I'm sure this has been covered many times on the board, but I was not patient enough to do a proper search for it after 1 minute of failing to uncover anything.  A quick question on loan offsets in a qualified retirement plan.  I understand that typically upon a distributable event (in this case - termination of employment), an outstanding loan becomes immediately due and payable within a certain period of time (60-90 days...based on loan procedures and the promissory note).  Failure to repay in full within this time period results in a loan offset with 1099-R reporting. 

The question is in what year is the 1099-R reported?  I have seen some providers that report it upon the quarter following failure to repay in full and others that do not report it until the entire account is distributed.  I understand the administrative ease of reporting it upon distribution of the entire account...and it makes sense if it is earlier than the quarter following termination, but does not make sense if the participant waits years to request a distribution of their account.  I've been told it is based on whatever the loan procedures say, but waiting until whatever year the remaining monies are distributed does not make sense.

Thank you!

We are having a discussion in our office about how distributions are or should be processed.  Just for simplicity take a termination distribution.  Say that the participant has $10,000 and he's fully vested, to make it easy.  He doesn't want a rollover, he wants a taxable distribution.  The form he filled out calls for 20% federal withholding taxes and no state withholding taxes.  The recordkeeper charges $100 to process the distribution, and our office charges $70.

One of us thinks that the 20% federal withholding applies to the full $10,000.  The participant has $8,000 after taxes, out of which he pays the fees, and ends up with $7,830 in his pocket.  

Another of us thinks that the fees come off the top, and the taxable distribution is $9,830.  The participant ends up with 80% of $9,830, or $7,864.

It matters because we are trying to develop a consistent way of "grossing up" when requesting in-service or hardship distributions.  The amount we should request depends upon how the taxes are applied.

Thanks in advance for any help you can give!

Starting in 2018, the tax reform (if it passes) doubles the $3,000 limit per year to $6,000 per year for a plan to benefit certain volunteers (e.g. volunteer firefighters, fire prevention, EMS, ambulance).

I am looking for anyone who has written plan documents for a length of service award plan. Also, looking for anyone interested in writing an article for publication regarding this topic.

What do you think about how Congress's H.R. 1, including its changes about how a business's income passes through to owners, will affect small-business employers' desire and willingness to create retirement plans?

Do employee military leave make-up contributions have to be made on prospective W2 pay or can the employee write a check to the 401k account? For example it is 12/19 and employee wants to contribute $18,000 for 2016 and $18,000 for 2017. She has 2017 W2 income after returning from military. Does the $36,000 contribution have to be make from her remaining 2017 payroll or can she write a check?

Thanks!

FreeERISA cannot provide SSA's anymore.  If the employer doesn't have them, is there any other source for this information?

sole proprietor (age 55) considering to adopt a new defined benefit plan effective 1/1/2017.  the sole proprietor does not have any employees.  the plan uses a unit benefit formula equal to 10% of average compensation times years of service.  the sole proprietor has 10 plus years of past service and his average compensation is at the annual compensation limit. the plan's normal retirement age is 65.

therefore, the accrued benefit as of 1/1/2017 is $1,791.67 (1/10 of the 2017 dollar limit) and the accrued benefit as of 12/31/2017 is the same $1,791.67. there is no target normal cost for 2017 and a funding target as of 1/1/2017.

the accrued benefit as of 12/31/2018 will be 3,666.67 (2/10 of the 2018 dollar limit).

does the plan violate the 133-1/3 accrual rule for 2018 since the increase in the accrued benefit for 2018 (3,666.67 less 1,791.67) is 133-1/3 more than the increase in the accrued benefit for 2017 (1,791.67 less 1,791.67)?

if the plan violates the 133-1/3 accrual rule, how can the plan be designed and still grant past service?

TPA and client agree that withdrawals for tuition under hardship provisions must be for upcoming, unpaid tuition.  Client is worried that if a student begins a semester, let's say, September 1 and starts attending classes, but the tuition bill isn't issued, mailed and due until, say, October 1, then the tuition is "old" business and may not qualify, or at least might need to be somehow pro-rated such that the September expenses are not included.  TPA takes the position that the timing of the billing does not matter; the bill is for the whole semester and the fact that it didn't have to be paid to the penny up front is immaterial.  We can't find a chapter and verse anywhere that addresses the exact timing of the bill.  What say all of you?  Thank you.

Plan Merger.  Don't have money yet, cannot set up a takeover loan until money is transferred in.  Participants already are having loan payments that we have just sitting in the account to set up the loan.

Participant will not have much money when transferred in as they apparently took a hardship after the loan.

If there is not a big enough balance, how do you force the loan to work.  No help from Relius, said I had to put fake money in fake accounts.  This is a large, audited daily plan, so I don't want to have "fake" accounts.

Any ideas?