FundeK

Calling all recordkeepers or administrators - Can I get your opinion on or experience with accepting faxes or copies of documents related to participant distributions vs. requiring the participants to send documents with original signatures. I would like to know what your practices are and what you feel the risk is related the accpetance of documents with non-original signatures. Thanks!

The loan program indicates that loans will immediately become due and payable upon termination of employment and if not repaid, it will be offset. There is no mention of how to treat loans upon death. Generally, if a participant were to terminate, they would have about 90 days to repay in full before an offset would occur. In this case, I would think that the beneficiary would have the same timeframe to make payment or complete the rollover. It all makes sense on paper, but something is telling me a beneficiary can't assume the loan liability and make ongoing payments. What do you mean by the loan being assigned by its terms upon death?

Can a spousal beneficiary who is a participant in the same plan as the deceased participant, rollover the participant's loan balance into her own account and assume repayments? I found this in the ERISA Outline Book: If the participant has an outstanding loan at the time of death, the participant's death will usually result in an offset of the unpaid balance against the accrued benefit. The participant (or the participant's estate), not the beneficiary, will be liable for any taxes resulting from that offset, because the beneficiary is not a party to the loan agreement. The tax liability might be reported on the participant's final income tax return or on the estate's income tax return. The taxation of loan offsets is addressed in Treas. Reg. §1.72(p)-1 and is discussed in Section IX, Part E., of this chapter. The plan's loan policy might allow the beneficiary to assume the loan obligation and make repayment. A surviving spouse might do this, for example, in order to repay the loan and increase the amount available for rollover by the surviving spouse. I also found this in the ERISA Outline Book: If benefits paid to a surviving spouse of the plan participant are made in the form of an eligible rollover distribution, the surviving spouse may elect to rollover such distribution, subject to the same rollover rules that apply to participants. So, I take this to mean that if the plan allows participants to rollover loans (which I know isn't all that commone) then the spousal beneficiary would be able to rollover the loan and assume payments. Is that correct? Doesn't feel quite right. Any thoughts would be appreciated!

In my experience, many don't know about the exception for spouse's and assume it is the same for both because the document just references the regs and doesn't always call out the difference. Can the original poster clarify exactly what the document states?

For spousal beneficiaries ONLY. A spousal beneficiary must commence distributions by the later of 1) December 31 of the calendar year that follows the calendar year in which the participant died, or 2) December 31 of the calendar year in which the participant would have attained age 70 1/2 So, a spousal beneficiary, depending on the terms of the plan document, could leave the money in the plan with an election to start installments in the year in which the participant would have attained age 70 ½. Based on the information you provided, you do not need to force a lump sum, but would need to force and RMD in 2015.

Does the interest get credited to the affected participant accounts and posted as interest? Is this a self correction that does not need reported? Thanks!

Does anyone know the proper correction for a plan which has charged an incorrect interest rate on participant loans? Hypothetical situation: Plan's loan program indicates a "reasonable rate of interest". Plan intended to charge prime +2, but recordkeeper's sytem mistakenly "froze" the interest rate in for a period of time 2005 (no interest rate updates were made when prime changed). In 2006, a system update was made which caused future interest rate changes to be made to the plan, but the "base" interest rate was now off the mark because of the time it was "frozen". (system calculates new interest rates by looking at the old one on the system and adding or subtracting the rate increase or decrease). So if prime went up by .25%, the interest rate for the plan also went up, but it never caught up to prime +2%. So, the plan charged an interest rate that was below what it intended, and at times below prime. Does a correction need to be made? Also, prior to 2005, all loans issued were prime +2%.

A participant passed away in 2002. He had been receiving RMD payments of about $1,100, but apparently not cashing all of them. The spousal beneficiary just found one that was issued in 2000! (Not sure yet, but there could be more). How should this be handled? Can we reissue the check to the beneficiary or should it be reissued to the participant who obviously can not cash it? Any guidance would be appreciated.

If your plan allows in-service, then yes it is allowed. The account balance only needs to be used as security at the time of the origination of the loan, not throughout the entire life of the loan.

No takers huh? Did I phrase the question okay, or are they not clear? I am just not sure what kind of withdrawal restrictions should be place on funds attributable to an after tax deemed loan repayment.

I personally haven't heard of this "new" regulation, and I try to stay on top of things as well. I think Kirk response best answered your question. Probably just an "urban legend" in the financial community! Definitely the best thing to do!

I must have been typing my response as others were posting theirs. I am just too slow, they beat me to it!!

Wow, such aggressiveness from some.... When I first read the post , I initially took it to mean the participant wanted all of his fees (such as trading fees, maintenance fees, etc) charged to the business, not necessarily plan administration fees and trustee fees. If GBurns read the post the same as I did, his comments would make alot more sense.Why don't we let GBurns answer Kirk's post first....

I also posted this question in the Distributions & Loans Forum....I wanted to make sure everyone got a chance to take a look, so I also posted here! Okay, I understand the loan repayments on a deemed loan generate basis and are not considered employee contributions for purposes of the nondiscrimination test under §401(m) nor for purposes of the §415 limits. My question is, how are these repayments treated for future distributions? For all of the recordkeepers out there.....(or anyone else who can answer this!), how are the loan repayments put back into the participant's account? For example, you have a deemed loan repayment of $3,000. The original loan was taken out as $2,000 deferrals, and $1,000 match. When you process the deemed loan repayment, do you have to deposit back into the account as deferral and match, or can you redeposit it as after-tax? If you have to deposit it as deferral and match, you now have basis in "pre-tax" sources? If you redeposit it as after-tax, are they now subject to after-tax withdrawal requirements? Any cites would be greatly appreciated!!

Couldn't he pay "in advance"? So, you amortize the loan for quarterly payments, he makes a years worth of payments when the first quarter is due, and then in a year, makes another years worth of payments. So, he never goes delinquent because he hasn't missed a "scheduled" payment. I am grasping at straws here..... Anyway, I think the real problem is that the loan should be considered a deemed distribution from the time it was issued because it didn't meet the level amortization requirements from the beginning. Anyone agree?

When was the loan issued? I have seen a few loans that were issued in the 80's that have annual payments...grandfathered I believe.

Okay, I understand the loan repayments on a deemed loan generate basis and are not considered employee contributions for purposes of the nondiscrimination test under §401(m) nor for purposes of the §415 limits. My question is, how are these repayments treated for future distributions? For all of the recordkeepers out there.....(or anyone else who can answer this!), how are the loan repayments put back into the participant's account? For example, you have a deemed loan repayment of $3,000. The original loan was taken out as $2,000 deferrals, and $1,000 match. When you process the deemed loan repayment, do you have to deposit back into the account as deferral and match, or can you redeposit it as after-tax? If you have to deposit it as deferral and match, you now have basis in "pre-tax" sources? If you redeposit it as after-tax, are they now subject to after-tax withdrawal requirements? Any cites would be greatly appreciated!!

Both. If the Client feels so strongly that it was their error, they can help the participant out by assisting him/her with the taxes and penalities outside of the plan. Unfortunately the regs don't allow a correction for "administrative error". Also, I have seen DOL letters that addressed this type of issue. They said that it was a breach of fiduciary duty and made the plan deem the loans. I don't have the exact wording at hand, but it you would like it, I could probably quote the cites they used.

Does anyone know what the record is for the most views on an individual post? I have to think that the 1,006 views on the "Best retirement pension plan" post in the Retirement Plans in General Forum would have to be in the running. I have to admit that I have found the bickering to be quite addictive. The posters may not mean to be entertaining, but they are! It is like rubbernecking at an accident, you don't mean to look, but you just can't help it.

I think GBurns question is a relevant one.I think it is important to take a look at those around you (city, company) and see what they regard as a "professional designation". This is the one you want to pursue if you plan to stay in your current position and city. This designation would give you the "credibility in a job search" that you are looking for. As for "preparing you for a role in relationship management", I don't know that any professional designation will do that. That most likely takes time and experience. I, for one, went the ASPPA route simply because that is the only one my company supported and promoted. I do think I learned alot from the courses, but have learned ALOT more in doing my job day to day. The course give you a foundational knowledge, but if you aren't applying it, you will lose that knowledge fast.

What happened to the optimist in both of you?! I am sure that there are PLENTY of people out there who go through friendly divorces.....when she gets what she wants!!!

Does anyone have any comments on this post from April? Specifically the following: Does anyone have any of these PLRs?

At a previous employer, where we used Corbel, our legal department advised us that the forfeitures could be used to fund any ER contribution. We used match forfeitures to fund PS contributions and PS forfeitures to fund ER match contributions. Of course, this was always at the direction of the Client.

A suggestion: The amortization requirements of IRC §72(p)(2)© require that the principal and interest payments must be amortized in substantially level (equal) payments. These payments must be made on at least a quarterly basis. If your loan policy allows, and the participants can do it, set up the loan for quarterly payments. May work out depending on the timing of the leave. Another suggestion: If the loan policy allows, the participant could reamortize the loan each time he/she came back from an unpaid leave of absence. Not much fun if you are the recordkeeper.

Here is the worksheet I use when determining max available. I would work through it for your scenario, but I don't know the total vested account balance. Part I 1)Maximum statutory loan amount 2)Highest outstanding loan balance for 12 months 3)Current outstanding loan balance (let's say it is $40,000) 4)Subtract 3 from 2 5)Reduce maximum statutory limit (subtract 4 from 1) Part II 6)50% of Participant’s vested balance ($40K loan + $10K CB) Part III New Loan Limit 7)Lesser of 5 or 6 8)Current outstanding loan balance Maximum new loan amount ( subtract 8 from 7)