austin3515

Pretty much the thought process we are going through! Major major committment, entirely new operation. And getting plenty of new business without having to mention it... But I do like the idea of saying "hey, I can send notices for you and sign off on distributions." This processing payrolls and getting full census data each pay-period seems like an overreactive fix to a problem that I don't see is out there.

In general, I am pessimistic about the 3(16) business model, but I get that there are aspects of it that appeal to clients. My question is, do I have the latitude to pick and choose which things I will offer as a 3(16)? So for example, I think it rather unappealing to clients to take over the deposit process because most clients want to be involved in ACHing funds out of their own operating account. But I think in general clients LOVE the idea of a TPA signing off on distributions. Signing a form 5500 - not a big deal since I already prepare a signature ready form. But responsibility for sending out notices? Quite appealing. So the question is, can I have a "3(16)-lite" offering, charge a little bit more for it, and take over those things that are the most value added (emphasis on the word value). I already understand the concept behind the full suite of services, so no need to sell me on that!

In this example, the funds are money, and money is fungible. You're question is framed in the context of somehow getting a boon for the participant by somehow circumventing the vesting rules. This ignores the fact that you are transferring an equal sum of money into the profit sharing account. A you know, people rebalance their accounts in participant directed 401ks all the time, and can indeed switch their accounts between Fund A and Fund B in different sources as I described. So this actually happens, so it is unclear to me why you would suggest it cannot and therefore presumably does not happen. And how can you account for the existence of pooled accounts where all investments are commingled and there is NO attachment of source to any underlying investment?

What's the difference between your question and this question: "can I change how my 401k is invested from Fund A to Fund B? And can I also change how my match is invested from Fund B to Fund A?"

For treating a loan like an investment? And in the face of no plan provision, no regulation, no IRS Q&A, no promissory note provision, no absolutely anything beyond conjecture to suggest that source is as intrinsic to that investment as its interest rate (which is plainly stated in the legally binding promissory note)? That's really the position here, that somehow source is intrinsic to the loan. You can;t just say that it is without something written into something legal that makes it so (or a regulation that makes it so, or an IRS position). Yeah I don't think this is in the same category as botching the top-heavy issue on a 401(k) only plan. Not even close. And I would still like others to clarify that you can most definitely trade Fund A in 401k for an equal sum of Fund B in match. There has been ample suggestion in this thread that that is not possible, but again it implies that somehow source is intrinsic to an investment--it is not. I'd appreciate it if others would say so if you agree. This is just totally uncontreversial, but it is the foundation of my argument. I saw more than one suggestion that what I have suggested is impossible because the funds are somehow "stained" by their source.

This question overlooks the whole point of all of this which is the other side of the coin. Could $3,000 in Fund A, 401k, be switched with $3,000 of Fund B in Match. And the answer is "yeah, obviously." Please tell me no one disagrees with THAT?

As I said before, a "pension celebrity" that you all know said this would work. And that is more than good enough for me!

He ends up with 2 taxable distributions - one for the loan defaylt and one for the distribution. That;s twice as much in taxes. And I still end up with basis which is "bad" (in my opinion).

Here is another example. Participant A has $10,000 of Match and all of it is allocated to an illiquid privately held stock. Participant also has $10,000 of liquid mutual funds in his 401k account (yes, of course this can happen, just because it never would doesn't mean it could not). Now the Match says you can take everything after 5 years of participation, and the 401k says you have to be 59 1/2 and this guy is only 40. And he wants an in-service distribution. How do you all feel about moving the illiquid investment sourced to match into the 401k account, and transferring the liquid investments sourced to 401k into the match? If this is OK, then my scenario should be ok. If you're not sold, how about this? The participant is magically able to sell the illiquid investment to cash, and turn aorund and by liquid investments within the match account. He then sells all of his liquid funds in his 401k account, and buys the same illiquid investment back the very same day, all within his 401k account. So now I have moved my illiquid investments to my 401k account, and my illiquid investments to the match account. If that works (and I cannot fathom a suggestion that the previous paragrpah is not allowable) then merely cutting out the middle step of liquidating to cash should be moot, and back we go.

a) Participant has max # of loans already b) The plan sponsor has agreed to pay for the tax impact of the default so the participant is whole anyway. Because taxation is unavoidable anyway, they didnt want the guy to have go through all that trouble. PLUS we would end up with basis in the plan, and my feeling is that basis is almost never accounted for correctly in the long-term. c) We just wan the loan and the problems with it to go away. Hence trying to rebalance the account to put the loan in a source that is currently distributable.

I really think my transferring the bond example above is about as clear as I can possibly be. You just change the bond to a participant loan in my example. And I said there, but will repeat. There is no difference between a bond and a participant loan, because they are both loans. A lot of you keep suggesting too that I'm allowing impermissible distributions, etc., buit if you read carefully the balance in 401k never changes. I know some reports will not report the loans broken out in their respective sources, and insted just report the loan in total, but the loan is allocated to soruces nonetheless, and my 401k balance in my examples never changes.

If I can sum up all of the concerns described above, they all come down the same interpretation which is: Loans are not investments. But that is not the case. Loans are investments.

Yes, but this is what I said earlier about this:

Well my brokerage account example was merely to make it plausible to move the bond between the accounts. And we definitely have clients who earmark a brokerage account for employee money and a separate one for employer money, and I see know reason why securities of equal value could not be shifted between them. But now you've made a liar because I said the last one was my last post!

My last comment on this is as follows: Those of you who are nay-saying are taking the position that a loan and a mutual fund are different with respect to rebalancing. My position is that it is no different. The whole point of all the loan rules (commerically available interest rate, etc) is specifically because it is an investment. Here is an example that nicely underscores my point. Let's assume a small plan has 2 brokerage accounts for one participant. One account is for employee money and the other is for match. Let's say there is a corporate bond worth $10,000 in the 401k brogerage account. Now, if the partcipant wants that corporate bond in his match account. So he transfers $10,000 worth of mutual funds into his 401k account, and moves the $10,000 bond into his match account. Now if you say that's fine, I just say it's the same scenario precisely to what I have described above. A loan is a loan is a loan.

Thats a good point, one that might have occured me (I hope!) but for the fact that I know he is an NHCE.

I'll just point out that I am doing this as a result of some extenuating circumstsances. We're not making this a normal part of the plan. I would not be doing this if it wasn't a home-run solution for a particular set of problems that I had on a plan.

I'll just focus on this question. Yes, absolutely. And it must because the loan payments must go back to the originating source. I don;t know if that answers your other questions.

A "pension celebrity" just said he doesn;t see a problem with it. For anyone who wants to steal my idea (I'm giving it to you anyway, so need to steal it!) he said just make sure you take into account accrued interest at the date of the "transaction" when figuring out how much money to shift around.

Well, I guess my point is, where is the clarification that a loans sources are fixed at the date of the loan? Where is it "ruled" that you cannot rebalance a loan into other sources in exchange for mutual funds? If for example, Participant A had $5,000 in Fund A in his 401k account, and $5,000 in Fund B in his match account, he could clearly "switch" and put his $5,000 of Fund B in 401k and $5,00 of Fund A in Match. Because loans are INVESTMENTS, why can I not do the same thing?

Here is an interesting question. Participant has $10,000 of Fund A in his 401(k) account and $5,000 of a participant loan in his 401(k) account. He also has $7,000 of Fund A in his Match account. Can I have the participant sign an investment election to rebalance his portfolio and shift $5,000 of Fund A from his Match Account to his 401(k) account, and then transfer $5,000 of his loan from his 401(k) account to his match account. His 401k account would be reduced by the $5,000 loan leaving, but increased by $5,000 of Fund A being transferred in. As a result, the account has the same balance in the end. The same thing happens in reverse order on the match side. Is there anything in a reg or whatever that indicates the source of a loan can never be altered? There is much in the rules that is quite clear that loans are INVESTMENTS like any other. A consequence of that definition is that this should be doable.

No - the "big" plan uses the basic match. So my question was really "Does everyone agree this does not work" (I don;t think it does).

Recent acquisition (last year or two). Both plans are calendar year. Scenario A Both plans have the exact same match formula and eligibility. Can I merge these plans together mid-year (Say May 1 2020)? Eligibility would be expanded to additional people after the merger because the surving plan has a more liberal eligibility policy. Scenario B One plan with a dollar for dollar match on the first 4%, would merge into a plan with the basic safe harbor match. I assume this would be a reduction in match? I know Notice 2016-16 solicits comments on the need for additional guidance, but what are we to do in the interim? I feel like Scenario A is doable but probably not B. I saw Tom Poje had posted the idea of changing the plan year ends to create a short plan year, but I just don't think that is realistic in this case.

Impressive - 2005 ASPPA Q&A: 44. For form 5500 purposes, must the participant count at the beginning of the year equal the ending participant count at the end of the prior year? In other words, does the planyear begin, THEN participants enter; OR, does the plan year and plan entry happen simultaneously? A. New entrants on the first day of the plan year are counted in the opening participant count. Therefore, it is quite likely that the participant count at the beginning of the plan year will be different than the participant count at the end of the prior plan year. Although I suppose the context of this conversation was based on that understanding. But bravo!

I just got this letter a month ago! Fortunately I was able to respond and say "yup, it was a partial term." In our case, we addressed the partial term and vested everyone on pay out, just forgot to say 0 on that line. What really happened is we paid them out during the plan year, forfeited their balance, and then discovered the PT and reinstated their forfeitures after the fact. Thankfully it was an 8 person plan so not too big a deal.