MoJo

Fascinating thread.... I used to work for a bank (Key Bank) - in their institutional trust business, supporting the daily valued 401(k) platform (a while ago). When the issue of interest rates was raised (back in the '90s), we went to the lenders at the bank, posited the scenarios, laid out all of the facts (including being "secured" by the account balance) and asked them what they would charge for similar loans. Their response? We wouldn't make such loans at any interest rate. Their rationale? 1) The collateral couldn't be "attached" until some future point in time over which they (the lender) had no control; 2) the loan was dependent upon continued employment, which could not be guaranteed, and termination of employment was defined as a condition of default (which meant far too many such loans wold be defaulted); and 3) the "available on a non-discriminatory basis" requirement meant that they had to take the lower paids (less credit worthy in their minds) along with the well heeled (desirable clients to a lender) and that meant too much "credit risk." Bottom line: Having to "call a bank" to set interest rates (despite being burdensome) would probably not yield any results, let alone desirable results. Car loans are based on the car as collateral; boat loans on the basis of the boat being collateral; personal loans being based on the individual creditworthiness of the person, etc.... None of which is applicable in a plan loan scenario.

I would agree - in a "minor" situation, it wouldn't necessarily be an issue - although in the specific instance you cite, I can assure you they will look. We have 3 clients being examined by the IRS, and due to an error, the wrong "plan characteristic" code was used for a number of years extending back beyond the "normal" statute of limitations (lack of training, lack of supervision) and the Service is going all the way back questioning the issue and requiring amended return (and there is NOTHING else wrong with them).

Well, if I recall correctly, and incorrectly filed Form 5500 is deemed "not filed" for statute of limitations purposes, hence the statute "never runs." Arguably, "amending" a 5500 by definition means the original was not correct, so I would suggest, until the "corrected" amended 5500 is filed, the statute never actually began to run. Interesting. So if the IRS looked at a 5500 that was theoretically past the statute of limitations, but found an error, the statute never really ran to begin with? Technically, yes, but they generally won't look at an old 5500 unless there is a reason (say, they audit a 2012 cash balance form 5500 finding issues, they may then look at the 401(k) plan and go backwards and may find a 5500 error - which then becomes an open issue)

A couple of things. First, most plans I see (and have drafted) contain the proviso that it is intended to be a "tax qualified" plan under IRC sections 401(a) et. seq. Arguably, the fiduciary obligation to abide by the terms of the plan would require at least some consideration of attempting to comply with this "purpose" (amongst the others). In addition, the "fiduciary requirement" to abide by the terms of the plan has a proviso that one does not have to abide by the terms of the plan if it would be a violation of one of the other fiduciary obligations (i.e. the "exclusive purpose", and the "prudent expert" requirements, specifically). One could argue that it clearly would be more prudent, and consistent with the exclusive purpose rule to NOT cause tax consequences to participants (by abding by the terms of a plan that ceases to be, in form, tax qualified) - which in effect abrogate the benefits "promised" by the plan design (the loss of the tax deferral value of the benefits promised, etc.). Just food for thought. Would love to see a case on point (not involving one of my clients!).

I suppose it depends on where the house is (state law may vary), but in Ohio, unpaid taxes are a "lien" against the property and are, in fact, "foreclosed on" when the property is sold at sheriff's auction. In my mind, it *is* a foreclosure. Forks comments on whether it is or is not a hardship condition being very apropo.

Well, if I recall correctly, and incorrectly filed Form 5500 is deemed "not filed" for statute of limitations purposes, hence the statute "never runs." Arguably, "amending" a 5500 by definition means the original was not correct, so I would suggest, until the "corrected" amended 5500 is filed, the statute never actually began to run.

I would also agree - and then go find another recordkeeper....

There is, in fact, only one spouse - the first one. The second "purported spouse" isn't legally a spouse of the participant as you can't marry one when you are married to another (at least in the eyes of the law, "Big Love" notwithstanding). On distributions, if you can't determine who is the real spouse - interplead the benefit to a court and let them decide. In this case, for a loan, I'd deny the loan until appropriate "spousal consent" is obtained - defined as the real spouse - of if that can't be ascertained, then an abundance of caution would suggest both "purported" spouses sign. If you get teh "wrong" consent, you may have to make the plan whole if the participant defaults, to protect the "right" one. That probably would dissuade the participant from even asking for the loan....

Ah.... Some things old are new again! (been in the business long enough to remember the DOL's position on this, where they were for this before they were against this).

What MA wants and what it may be entitled to are two different issues. Nothing is considered "income" for tax purposes until it is distributed from the plan. Where it was earned (with the exceptions of PA and AZ, I think), it isn't "taxable" comp. One of the pre-eminent principles of tax law is that the taxing jurisdiction must be the situs of the action giving rise to the imposition of the tax. The "distribution" from a plan/trust/employer plan situated in MA is not an event giving rise to taxation. It is the receipt by the participant of same that actually gives rise to a taxable event - and that, based on the facts given, would be in NC.

Generally, the tax is payable when the payment is includible in "income" and that would be where the participant resides at the time of distribution. Hence, I would say, NC.

I concur. The only issue is typically one of participant communications. Keep in mind as well, that under the trustee directed scenario, whatever protections ERISA 404© provides (and what, if any, those are is the subject of another discussion) would no longer apply, and the trustee has full fiduciary responsibility for investment decision making. In my mind - not bad at all (if they know what they are doing), and virtually every study I have seen confirms that professionally managed plan portfolios outperform participant directed ones.

While I agree wholeheartedly with shERPAs discussion above, I think most plan trust agreements provide some flexibility in the distribution of illiquid assets, and don't think the withholding of that portion of a distribution is as much of a problem as the decision to invest in the asset in the first place. That said, since it is real estate, simply distribute "in-kind" (provided the plan allows, or can be amended to allow) an undivided fractional interest in the real estate via a quit claim deed. Easy to do with real estate (complicates the future sale, though, if not all can agree), and some IRA custodians will hold such an asset. Alternatively, the asset can be transferred into an LLC vehicle (held still in the plan), and then units in the LLC can be distributed to the participant in-kind (which eliminates some of the problems with a later sale).

It's simple: 1) not paying attention to investments 2) not paying attention to fees 3) not paying attention to the plan document/plan terms 4) not paying attention to Code or ERISA mandated [_fill in the blank_(i.e. disclosures) ] 5) not paying attention to thier service providers (who (hopefully) know the rules) I detect a pattern.....

Are you saying that the recordkeeper is insisting that the account balance include both the loan and sufficient other assets equal to the amount of the loan? That is clearly wrong (for the reasons the other posters have indicated) - but there may be a communications issue here. I've had the same discussion with record keepers before - and had to clearly explain to them that 1) the loan itself is an asset of the trust; 2) unless the loan is actually distributed as part of the in-service distribution, it remains an asset of the trust; and 3) immediately after the in-service distribution of non-loan assets, the participant's account still has a positive value equal to the outstanding balance on the loan. It is amazing how many people don't think of a "loan" as just another investment option selected by the participant. They somehow think that a loan "removes" assets from the trust. The loan removes cash from the trust, replacing it with a "note" (which is just a piece of (virtual) paper - but so is a stiock certificate or a unit in a mutual fund). Sorry to be so simplistic and rant - but I've experienced the same frustration. If they don't understand, there are plenty of record keepers who do....

We've had "inconsistent" results with respect to documents (plans and/or amendments) that don't contain a (handwritten) date on which the document was signed. We've used "extrinsic" evidence, including corporate records, emails, even timestamps of when a document (fully executed) was "scanned" into our paperless system (i.e. if we "scanned" it on a certain date, it must have been signed before then). The inconsistency arises in that different reviewers accept different things as proof of execution. We even had one refuse EVERYTHING saying in his response that "while what you have provided would be conclusive proof in a court of law, it isn't sufficient for me...." We threw our hands up on that one.

One of the most wonderous aspects of the English language is its dynamic nature. Two "sources" on the use of "Esq." as a designation for attorney's: http://www.emilypost.com/forms-of-address/titles/115-correct-use-of-esquire http://ms-jd.org/there-issue-calling-yourself-quotesquirequot Bottom line: It's "historic" use is of little consequence in contemporary society. It's used. It's understood. Some react positively, other's negatively.

Nope. I'll take mine, any day. Oh, I agree - I was a "carpet-bagger" as far as the natives were concerned. Indeed, I was a "trailing spouse" and spent the better part of a year being asked by prospective employers "why I let my wife do that to me?" And we aren't talking that long ago. MoJo, J.D., LL.M. Proud graduate of the University of Akron (J.D.) and Case Western Reserve University (LL.M.) and a "Buckeye" once again....

I remeber once a company I worked for sent around a bio of the new regional head. This guy was almost 60 years old had a long a sucessful career. Towards the bottom it listed attended Country Day High School. I will never get it. That tells you more about his parents then it would about him. I guess I will never go native. Yea... You should try Richmond, Va on for size. Not so much the high school thing, but colleges (and the 60 year olds would wear college class rings over even wedding rings). When asked, there actually were only a number of "acceptable" answers. UVA, William & Mary (the top choices); Univ. of Richmond (only if you couldn't afford to go out of town - a "poor" second choice), and "out of state." If the latter, it truly was irrelevant which school - as it was obvioulsy inferior to the aforementioned choices (as was virtually any other college in Virginia). The designations after my name are irrelevant (I'm a lawyer) unless I want to tick someone off (nobody likes lawyers), but other than using Andy's (DTFAP - that is AWESOME!), I usually see the ASPPA designations used only one at a time (with the highest designation being the one used) - plus an other designations (ERPA, etc.)

Just keep in mind that for every rule out there, there was an abuse that was sought to be cured by the rule. In all honesty, is the amount of the "lost" match of that much consequence to an HCE who has the benefit of participating in a SERP? Sometimes we spend a lot of time (and money) attempting to provide rather (relatively speaking) inconsequential benefits to the well heeled. Don't get me wrong - I make my living doing just that....

Yes, but.... One can't have everything (and goose the contribution a bit in the SERP to account for the differences).

Without getting into the weeds (and there is a "cost" associated with this from a tax deductibility/timing issue), why not change the terms of the SERP to provide that the employer will make in the SERP the "match" that otherwise would have been made to the 401(k) plan had the exec not participated in the SERP?

I guess they aren't going to be in the business much longer. To me, this is a no-brainer. The PLAN says certain employees become eligible under certain conditions, and the plan sponsor must adhere to the terms of the plan. In addition, the plan sponsor must, as a fiduciary, select service providers who ALSO will adhere to the plan provisions. If not, I would suggest a fiduciary obligation to fire them and move the plan elsewhere - lest you risk the qualified status of the plan. I understand some participants may take issue with that, but the plan sponsor's fiduciary obligations extend to ALL participants (including the new ones) and to adhere to the terms of the plan.

I agree in principle with your comments, but I must tell you, as one who has at any given point in time 15 or 20 matters pending before GP (determination letter requests, VCP, audits, etc.), I can only say that 1) the UTTER LACK OF CONSITENCY between agents is at least annoying, and at most an indication of the absence of training and common sense; and 2) the often irrational positions they take is time consuming (and therefore costly) and serves no useful purpose. With respect to the latter, we are currently dealing with an agent who wants us to "prove" that an amendment was timely signed by the client (the amendment was produced by a well renowned document service provider but did not include a date on the amendment - as part of the design of the software - which was contained in a consent action). We've provided the Consent action (properly dated), an affidavit of the individual who actually signed the amendment, minutes of the meeting (kept in the ordinary course of business) that show when the amendment was presented, discussed, and authorized, and a handful of other ancillary materials to show the timely adoption (including the receipt in our office of the signed document, and the "time stamp" of when it was scanned into our systems). Not good enough. He also refuses to tell us what would be good enough - except to admit that there is no "legal" requirement for the date to actually be on an amendment. He even admits that what we have provided would be more than enough "evidence" in a court of law - but it isn't sufficient for him. My client is now in a "Catch 22" and is under the gun as a non-amender for which the penalties will be thousands for a small company trying to do the right thing (and who actually did sign the document timely). Bye Bye another retirement plan, if not another employer entirely. This is more the rule than the exception in my world. We routinely provide Agent A with copies of things acceptable to Agent B for an issue, only to have Agent A say "too bad, so sad, I want more." The WASTE of time to me and my colleagues (and our employer and clients) is ASTOUNDING. Perhaps the IRS should establish a task force with people like us to identify the issues and resolve them. Consistency and common sense are key - and my experience is that it is totally lacking.

Several contacts I have who are "connected" indicated last September that the DOL was going to publish "further guidance" - expected by the end of the year (2012) that would provide a "safe harbor" or "amnesty" for non-filers provided the past 3 years worth of 5500s were filed. That guidance hasn't materialized. In addition, my contacts indicated that the guidance would "clarify" what "relationship" between the separate employers would be sufficient so that it truly was not an impermissable "open" MEP - but would be a permitted MEP. The discussion (on a panel at PANC on which I participated) centered around a percentage of cross ownership (but not a controlled group or affiliated service group) where a MEP would be permitted. An attorney from Groom indicated that if there was 49% "cross ownership" (the owner of one company owns 49% of the other), the two employers would be sufficiently related for a legitimate MEP. As far down as 25% cross ownership, he was comfortable, and approaching 20% he started to hedge. The organization I work with (a consulting TPA) has a fair number of situations like that (cross owners, but not CG's) and we have gotten "cautious" about continuing MEPs - pending further guidance. That said - absent a legimiate MEP arrangement (and the cost efficiencies), many of those current clients would not continue being plan sponsors at all.