FundeK

You would take a previous 12 month "snapshot" of the loan account. What is the highest amount the participant had outstanding at any given time? If the $10,000 loan was paid off, and a new loan issued, the highest balance he/she had outstanding was $10,000. If the plan allowed more than one loan, you would have to aggregate all of the outstanding loans to determine the maximum available. The system we used at my previous employer did this calculation for us. (OMNI plan)

Yes you do.

Is a participant who is on strike considered to be on an unpaid leave of absence for purposes of making loan payments? Can he suspend for up to one year if the loan policy allows for suspension? What about a person who is laid off? Are they considered terminated or on an unpaid leave? Thanks

You are correct.

Stupid question - I clicked on the link below and I am not sure what I am to look at when I get to this home page. I did read 1.72(p)-1 (the whole thing) and I don't think it answers my questions. When a loan is reamortized, there is no "replacement loan" or "replaced loan". The original loan is simply reamortized. Correct?? Our policy to to reamortize only for an unpaid leave of absence or to change the payment frequency. When a loan is refinance, there is a "replacement loan" and a "replaced loan". This is when 1.72(p)-1 clarifies things. Our policy it to refinace to cure a delinquent loan (if not passed the cure period), to allow a participant to take advantage of a lower interest rate, and to add additional funds to their current loan. Does this sound accurate? Two more questions - Do you charge a new loan fee for a refinance? Do you require the participant to sign new paperwork for a reamortization or refinance?

Can someone please clarify when it is okay to reamortize a loan and when a refinance is needed? For some reason I always thought that you could only reamortize to change payment frequency, but now I am being told that I am wrong....Which is very possible.

Plan Sponsor discovers that 2 loan payments (in 2003) were deducted from Participant A's pay, but submited to recordkeeper under Participant B's SS#. Recordkeeper most likely returned the payments because Participant B did not have an outstanding loan. Is this a prohibited transaction since money was withheld from Participant A's pay, but not deposited into his account? How would you correct? Have the Plan Sponsor submit the loan payments for Participant A along with earnings? Would they have to report this to the DOL, or is submiting the payment and earnings enough? Thanks

Are you asking how to acrrue interest from the last payment date to the date of payoff? If the loan is current, the payoff amount will be the remaining principal balance.

The snippet from the plan that you quoted sounds to me like the forfeitures are to be reallocated. Where are you reading that the forfeitures can be used to pay expenses or offset the ER contribution?

Not a chance.... Unless the participant exceeded a statutory or plan imposed limit none of his $ is classified as catch up. Of course, this would have been caught before testing and the $ wouldn't have even been included in the deferrals for testing.

First, I will ask, what does the plan document say regarding the timing of use of forfeitures? Most plans that I administer are able to use forfeitures in the year immediately following the year in which the forfeiture occurred. So, for the 2004 plan year, I would look at the forfeiture account balance as of 12/31/03. If that balance was $5,000 I could use the entire $5,000 any time during the 2004 plan year, which may be $1,000 per month until it is used, or $5,000 all at once. If at the end of the year, a $ amount still has not been used, the document could state that the forfeitures must be allocated to all participants in the plan. I also have seen plans that require the forfeitures to be held for up to 5 years before they can be used or plans that allow forfeitures to be used as soon as they hit the forfeiture account.

Buy it on CD. Only print the pages you need, and you can do searches. It is great!!

That was my initial reaction, but I am being told that we wait more than 90 days because we want to give the participant the full "time period" to request the distribution. We then process the force out after the distribution paperwork has expired. I was not happy about this to begin with, but I was then leaning towards saying it was okay. So, you are saying that force outs need to occur before the end of the 90 day time limit for the notice?

Thank you for your replies. For the majority of our Clients, our policy is to wait at least 90 days before processing the force out. We have a Client who is demanding to do it after 30 days. (at least 35 to allow some mail time). I thought it was a bit aggressive, but I wanted to see what others were doing.

Can anyone tell me how you handle balances less than $5,000? How long after you mail the notice to the participant do you wait before processing the distribution? I know you have to wait at least 30 days, but I am wondering what the "standard" timeframe is (if there is one). Do you think 90 days is average?

Is there such a thing as a "loan rollover"? OR is it really a "loan transfer"? Is one "term" better than the other? Why would a plan allow a loan rollover/transfer other than in instances of plan merger or transfer?

I think the default/deem/offset terminoligy can be a little confusing so I would like to clarify...When a participant fails to make a scheduled payment on their loan, the loan is considered to be in default, which could result in a deemed distribution (active participant) or an offset (usually for a termination). An offset is an actual distribution, when a deemed distribution is not. What does the loan policy say regarding participant termination? If it states that the loan will immediately come due and be offset against the participant's account; you may have an operational failure because this was not done. I would think you could offset the loan now, issue a 1099-R for the year of termination, and call it a day (Is this a valid self correction?) If the loan policy is not that specific, I would think you would have to deem the loan because it is significantly passed the cure period. The participant would no longer be eligible for an offset because there is no distributable event. I personally would not recommend reamortization or refinance. Anyone agree?? Disagree??

It's not often (if ever) someone asks what I think..... This may be to simplistic of a view..... If the participant is over 59 1/2 and the plan does not allow for in-service upon reaching 59 1/2, but does allow hardship distributions....not eligible for rollover If the plan allows in-service upon attaining 59 1/2, I would have the participant complete the appropriate paperwork and request this distribution rather than a "hardship", making it eligible for rollover.

The loan policy specifically excludes participants living out of the US because there is no way to withhold via payroll deduction. They do not want to retroactively amend to allow this for all participants. Can you amend for one specific participant? I believe the response to the Plan Sponsor was that the loan would be deemed as a 2003 distribution, and the participant would have to amend their tax return.

Depends on what the plan document says....(Don't you love that answer??) If the plan uses a safe harbor definition for hardships, then no way does this qualify. If they use facts and circumstances, then it may be possible. They should have something in writing stating how a hardship is determined (what criteria a participant needs to meet). They need to be very careful using the facts and circumstances because they need to apply it uniformly to all participants. If they grant Joe Schmoe a hardship to buy a car, they should be prepared to do the same for all participants in similar circumstances. Hardships are not eligible for rollover, therefore are not subject to the mandatory 20% fed withholding.

Loan Policy does not allow a class of participants to receive loans. A participant from this class accidentally received a loan in 2003. How is this corrected? I am guessing we have to issue a 2003 1099-R for a deemed distribution. The participant is unable to pay back the entire amount of the loan (about $18,000) at this time, can he make payments on this deemed distribution? Also, he is under 59 1/2. It seems unfair that the participant will face huge tax consequences because the plan, or TPA allowed the loan to be issued.

I would like to add a word of caution….You probably already know this, but I thought I would throw it out there anyway. Just because a participant fills out a form indicating he wishes to “make a catch-up contribution” does not make that deferral a catch-up contribution. It is not determined on a payroll basis, but at the end of the calendar year, or at the end of the plan year for ADP purposes. A participant may complete a form indicating he wishes to defer the 20% plan imposed limit as well as an additional catch-up amount, but the deferrals are not classified as catch-up contributions until it can be determined that he exceeded a plan imposed or statutory limit. For example, Participant defers 25% from Jan – July (20% + Catch-up amount). He then defers 15% from Aug – Dec. If the plan classified the extra 5% from Jan-July as “catch-up” because he exceeded the plan imposed limit for that time frame, that would be incorrect. You would need to take his total deferrals divided by his total compensation for the year to determine his deferral percent. I hope this has not added confusion. Have you read the catch-up contribution section of the ERISA Outline book? It give pretty good examples for noncalendar year end plans.

If $1,000 of the $8,099 deferred was treated as a 2002 "catch-up" contribution then it should be excluded from the test. You would test with a base of $14,139.

Please help!!! Can a non-spousal beneficiary transfer their inherited benefit to another qualified plan (Avoid tax consequence) if both plans allow transfer?

What would be the consequence if you did not accrue the interest prior to offset?