austin3515

I'm sorry if I'm being dense here, but why are you saying I could repay in a lump-sum within 30 days of the end of the 5 year term? Or are you just saying that in the case of a 5 year loan with NO problems, making the last payment 30 days late wont go into default?

Luke, to be abundantly clear, the grace period in the regs applied only to extending the initial date of the default. The grace period just doesn't have anything at all to do with the expiration of the 5 year term. I guess what I'm saying is there is just no way in the world to link the grace period on the back of the 5 year window. Is that correct? Theoretically I could get the employer to fund full repayment of the loan, thus eliminating the need for amortization. I.e., the loan could be fully repaid "today". Maybe its worth a shot on a VCP filing.

I cant decide if I should be happy you think I concluded correctly or disappointed because the correction is more onerous!

Thanks Luke! Yes it is the same loan. The loan in question is within the 5 year period only if I get to extend the 5 year term by the grace period (again, I don't think it does, but I really really want it to). And then if I do not get to extend the 5 year term by the grace period, now I am outside the 5 year window and it seems to me my only option (aside from "sticking it" to the participant) is for the employer to pay the withholding and report the income in 2019 on a 2019 1099-R. I hope that clarifies...

RBG, your two statement sin the previous post don;t seem to line up? Both of my quoted posts are for the same loan. The las tpayment on the loan was made in 2018, so my grace period expired 12/31/2018 without correction. My 5 year term is up June 2019. Because there is no additional grace period available, aren't I in the situation where even full repayment "today" will not address the issue? i.e., I don;t have until 9/30/2019 to correct, right? My only option under EPCRS is to treat the loan as a taxable distriubtion in 2019 and have the employer pickup the taxes?

Could you be more specific, I'm afraid I don;t know what you mean here? Believe me, I want this to be the answer. But wouldnt the grace period be moot once the loan actually goes into default? i.e., once the grace period was exceeded after the first missed payment? For my case that was in 2018, so I'm way past the applicable grace period. Do you agree? What do others think?

Looking at ECPRS 6.07: Question 1 72p2B on its own references exclusively the 5 year term. But regs for 72p2C is what provides the grace period. I have a loan for which the 5 year term expired in June 2019. Are we entitled to use a grace period as well, giving us until 9/30/2019? Admittedly I’m having trouble getting there… Question 2 And then as a follow up, if that is not available, 6.07(2) seems to suggest that even if the loan was deemed in 2017, we can “cancel” the 2017 1099-R that was issued by the recordkeeper, have the employer fund any applicable withholding, and issue a new taxable 1099-R for 2019. Am I reading that correctly? Everything at issue here was clearly not the fault of the participant (there is general agreement that the recordkeeper let us down).

There is definitely a yay or nay answer to this question.

Well FWIW, I suppose the fact that I asked the question in the first place certainly suggests that I can understand your thought process. I was getting more comfortable the more I was writing. Anyway, curious to see if anyone else has a say, because i think it will be important to know if that is a consideration or not with this provision, which will clearly be a popular corrective tool in the shed.

But what portion of EPCRS are you saying is violated? There is no "smell test" (I agree the smell test 401(a)(4) - No, because including TFB is a safe harbor definition of como 410(b),this doesn;t affect 410b. 411(d)(6), Isn't this the cutback reference? No cut-backs here. and 403(b)(12), - Not a 403b plan, so N/A. Again, the IRS could have restricted us in that way, but they did not.

Take a look at this (the bolded section). Note that this type of language is not found in the correction by amendment requirements applicable to SCP that I'm referencing above. Instead they use the language "All eligible employees are treated the same." Because anyone with TFB would be treated the same, everyone is treated the same. Put it anothyer way, if they wantted the corrective amendment to benefit "predominantly nonhighly compensated employees" they would have said so (as they did in the correction by amendment related to eligibility). In fact there is an important distinction here as well. The amendment I described above must apply to ALL employees the same, while the eligibility failure described below can be limited exlusively to those employees who were treated improperly. .07 Correction by Amendment. (Appendix B Section I). (4) Early Inclusion of Otherwise Eligible Employee Failure. (a) Plan Amendment Correction Method. The Operational Failure of including an otherwise eligible employee in the plan who either (i) has not completed the plan's minimum age or service requirements, or (ii) has completed the plan's minimum age or service requirements but became a participant in the plan on a date earlier than the applicable plan entry date, may be corrected by using the plan amendment correction method set forth in this paragraph. The plan is amended retroactively to change the eligibility or entry date provisions to provide for the inclusion of the ineligible employee to reflect the plan's actual operations. The amendment may change the eligibility or entry date provisions with respect to only those ineligible employees that were wrongly included, and only to those ineligible employees, provided (i) the amendment satisfies § 401(a) at the time it is adopted, (ii) the amendment would have satisfied § 401(a) had the amendment been adopted at the earlier time when it is effective, and (iii) the employees affected by the amendment are predominantly nonhighly compensated employees. For a defined benefit plan, a contribution may have to be made to the plan for a correction that is accomplished through a plan amendment if the plan is subject to the requirements of § 436(c) at the time of the amendment, as described in section 6.02(4)(e)(ii).

Self correction by amendment. We meet all of ther equirements, the only "issue" is it so happens that predominantly HCE's. The issue is Taxable Fringe Benefits were taken into account when they should not have been. We want to amend retroactively to 2018 as the corection to include TFB. Is that a problem? There is nothing in the new "correction by amendment" that is problematic. It references me to section 6.02 for correction principles, but it seems I can check off all those boxes too (i.e., it is consistent with general principles). Thanks in advance!

Does anyone have a sample participant fee disclosure for an FBO account option? Participants can xfer balances between the main recordkeeper and "external" FBO accounts (still part of the Plan). If you'd be willing to share I would appreciate it!

Have a situation where a missed deferral opportunity was corrected in such a way that very closely resembles the EPCRS pre-approved correction. They calculated the "missed match" in such a way that some participants will end up wth slightly more than a 4% safe harbor match. The specifics are not relevant to my question so I'll forego a detailed explanation. The question is EPCRS Section 6.02 (Correction Principals) says "(a) The correction method should, to the extent possible, resemble one already provided for in the Code, regulations, or other guidance of general applicability." The correction method they used is resemble, and does resemble very closely what EPCRS says (including notice requireements, making up for missed match etc). It is just that the method of calculating the missed match provides them with a little bit extra than the EPCRS methodologies would have. Is this still a suitable correction under EPCRS SCP? Or is their essentially a "Do it this way or it's or you don't get any reliance"? We are capping anyone over $275K (in 2018) at the maximum match based on the normal formula. So this new approach will not allow anyone to get more than the match based on max comp. For whatever that is worth.

Even still, I can't see why that would be an issue? Owner takes a loan, owner loans the money to the business. There's no way to "prove" that the $50,000 that was deposited to the Plan by the corporation was sent to the plan, or if the $50,000 is still seitting in the checking account for working capital (or it it was used for last week's payroll).

Where is there an extension of credit?

If he is 70.5 then all balances are distributable. You don;t have to restrain yourself to the RMD. I agree with taking the loan first becaus it is not taxable, if you make payments. But the balance can be taken as an In-Service Distribution. And again you should be able to deduct the DB payments in 2019 even though they are being made on account of 2018. In this way really all you are doing is funding the DB from the 401k plan. Will someone please tell me if I'm missing something here?

Yes but not even one single payment? And isn't my idea "better" since they can amend the plan to allow for an in-service distribution from profit sharing after 5 years of participation? That seems like a zero risk alternative. I mean take the loan for $50K if you can make the payments of course. But if you need more, or if cash flow won;t support the payments, then I vote for an in-service from the currently distributable sources. I just add that pretty much every cash balance plan I ever started began with a client who had a LOT of money in profit sharing. That's generally the chronology - they are maxing out in profit sharing and want to contribute more...

Surely you wouldn’t advise a client to take a loan and advise them as part of the transaction they can just not repay it? too cute by half means of circumventing distribution restrictions on 401k

Well that is true but presumably he has some profit sharing and as you know that would be quite accessible. I mean if the plan were amended obviously.

Is the shortfall much more than $50,000? Start with a participant loan. Then he's gonna have to take the money ouyt of the 401k plan as a taxable distribution. What's that you say? The contribution to the Cash Balance plan is tax deductible? In that case, perhaps it will all net to zero (perhaps a 10% penalty tax would apply, no mention of age). You might even be able to take the deduction for the funding in 2019 to make sure the two offset each other more precisely. Sounds like he doesn;t need the deduction in 2018 anyway. AmIRightPeople?

Reminds of my experience with asking clients if they want us to e-file the 5500's for them, even though their signature will be on-line. 100% of those whose identities have been stolen say "absolutely not."

Well if they moved, the package we are sending would most likely not reach them anyway.

We have the ability to pre-fill Fund Company distribution forms with names and addresses before sending to terminated participants using an in-house software program. We would NOT enter DOB's or SS#'s. Just names and addresses. What are others doing? We had been including Names/addresses at one point in time but decided to stop because we felt like once that information was on the form, it was that much closer to being susceptible to theft. Do others have any insight regarding security audits, etc., that have done studies/analysis on this stuff? I'm sure others are putting a lot of thought into this. Part of the discussion of course is that we are mailing them the form, so the envelope and cover-letter does already have their name and address.

Polite on message boards?? That's novel concept :) I think I like that!