FundeK

What about the cost of overnighting a loan check? Can you deduct the cost (participant chooses) of Fed Ex from a retirement plan account? It just doesn't seem right to me!

Forfeitures can not just be carried from year to year until the plan sponsor decides to use them. The plan should address when they are to be used. What exactly is the wording in the document? The plan sponsor could pay the expenses outside of the plan, which means the forfeitures would be used to reduce the match or PS contribution (I don't know what "restire benefits" means). I have always been told that if they plan sponsor has forfeitures available, but does not use them that it will affect their deductibility. (If they have $5000 in forfeitures that they do not use, they will lose $5000 deduction). The prototype that we used at my previous employer allowed three options for the timing of using forfeitures. Forfeitures became available for use either 1. At the end of the year in which the forfeiture occurred 2. At the end of the year following the year in which the forfeiture occurred 3. At the end of the 5th year in which the forfeiture occurred.

It doesn't matter what the loan proceeds are used for, it matters what is used to secure the loan. If your home is used as collateral, the interest can be deductible. That is the only instance that I know of which would allow the interest payments on a loan from your retirement plan to be deductible.

Does my checking account count?? I would think that financial institutions that have a retirement plan product would accept automatic rollovers from the plans the recordkeep for, and therefore should or could also accept automatic rollovers from other retirement plan providers. Of course that doesn't necessecarily answer your question does it?

Can anyone provide any comments on R Butler's post from 2001? As well as my question below. A spousal beneficiary can choose to distribute based on their life expectancy, and the payments must commence 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, if the participant was 60 when he passed can the spouse wait until the year in which the participant would have attained age 70 1/2 to commence distributions? Doesn't that violate the 5 year rule? Please help shed some light on this for me!!

Generally, No. I do believe that if the participant's home is used as collateral (which doesn't occur very often) then the interest on those loan payments could be deductible. Someone correct me if I am wrong.

I reread this post multiple times, so I hope I have the facts correct. (I hate Mondays!!) So, employee is terminated from both Company A and Company B? Company A's plan could be written to only allow rollovers for eligible employees, or employees who are reasonably expected to become eligible employees. If this former employee no longer meets the definition of an eligible employee per the terms of Company A's plan, the plan does not have to accept the rollover from Company B.

Thanks for the replies. We have decided to deem the 3rd loan since it is the loan that sent the participant over the 2 loan limit. She has, of course, made payments on the third loan already! Should those be reclassified as deemed loan repayments, or would you apply them to loan # 1 that had to be put back into and active status because the check bounced? One more question....If the plan allows, and the participant can provide supporting documentation, how would you feel about "reclassifing" as a hardship?

See my prior post. There is no distribution because there was no balance on 12/31/02.

I agree with WDIK. The distribution would be due on 12/31/03, however, I think that the distribution amount would be $0.00 in this case (if the 12/31/02 balance was $0.00)

Is $800 high? What if it were even more? Would you consider that to be a reasonable fee to be paid by the participant? Who determines what is reasonable? It seems high to me as well, but I am just wondering what the DOL's view is. They haven't set a $ amount have they?

Treas Reg 1.401(a)(31)-1 A 16 states the following: A plan will not fail to satisfy section 401(a)(31) merely because the plan does not permit a distributee to elect a direct rollover of an eligible rollover distribution in the form of a plan loan offset. My questions is....If you do not have to offer a direct rollover option for a loan offset, do you have to meet the 402(f) notice requirements? How are others handling this? Do you send a notice and give the participant 30 days before offsetting? (I realize you should give the participant a reasonable amount of time after termination to repay the loan, but I am wondering if you have to provide the notice as well) Thanks!!

It is very difficult to answer this question correctly without reading the plan document/loan policy. I am going to answer based on a standard loan policy for a 401(k)/PS plan that requires the loan to be paid in full at termination. I am also assuming the loan is an individual investment and all payments were current prior to termination. Inactive = Terminated. I would allow the participant 90 days to repay the loan after termination. Once the 90 days have passed, and no payoff has been submitted, I would offset the loan, which is a taxable distribution. It is always a good idea to allow a reasonable time period after termination to repay the loan. (Reasonable is always subject to individual interpretation.) A deemed loan would accrue interest until it is offset, or paid off. I would not continue to accrue interest on a loan that should have been offset, but was not due to adminstrative error. Just because the participant did not receive a distribution does not mean the loan didn't go into default. A loan is defaulted (either deemed or offset) when the participant fails to make payments. How would I correct this? I would offset the loan now. Issue a 1099 for the principal balance and interest that accrued through the date the loan should have been offset (90 days from the termination date). You should not accrue interest through today's date. The participant would still have the option to rollover the funds if they could come up with the cash to make the deposit. OF course, all of my responses are my interpretation, based on a loan policy that requires full payment upon termination.

I am not understanding how this answers bmurphy's question. Can you please explain? Thanks! Is this the same person you posted about in this post? http://benefitslink.com/boards/index.php?showtopic=23651

Does part of the balance include a rollover amount? I have seen documents written that force payment at NRA if the participant is terminated, regardless of balance.

If you discover a loan should have been deemed in a previous tax year, do you have to issue the 1099 for the year the loan went into default, or the year in which you actually deem the loan? For example, a participant takes a loan in Jan 2003, and does not make any payments. Loan should have been deemed by June 2003, but was just discovered in 2004. Can we issue a 2004 1099? What if it crossed many years? Thanks!!

Can't, she won't provide one. That is the problem. She caused the operational failure, but won't resolve the problem. How do you force the participant to send a check? She doesn't care that the loan will be considered a deemed distribution.

One more try.... I have a participant who had 2 loans outstanding. She sent in a payoff for loan #1, took another loan #3, and of course the check bounced. She can not submit another payoff. How do you handle these? Is loan #3 considered to be deemed distribution at the time it was issued? I would assume the participant knew the check was going to bounce. Does that make loan#3 a sham loan?

Does anyone have any additional comments on this post?

Please forgive me if this is a silly question, but it is Friday and my brain isn't working as well as it did on Tuesday. When you charge the QDRO determination fee directly to the participant, do you have to withhold taxes on the fee? If the fee is say, $800, is the $800 considered a "withdrawal" and subject to taxes? I have a feeling the answer is no, but I would like confirmation. Thanks!!

Is this the same question you posed in the Distributions and Loans forum? IF so, it is not the exact same scenario. If the participant's $26,000 account balance includes the $13,000 loan, she can not take any additional funds as she already has 50% of her account balance in outstanding loans. See the Distribution and Loan forum response for further clarification.

I would agree with the participant. You need to take her entire balance into account when determining her loan limits. You would take $39,000 * 50% = $19,500. She can have $19,500 in loans outstanding. Since she already has a balance of $13,000 outstanding, you must subtract the $13,000 from the available $19,500. If she wants to take another loan, it can not exceed $6,500. Here is a section from the ERISA Outline book. Hope it helps. Chapter 7: Taxation Rules - Section IX (Participant loans): Part B.2. (Limits on amount of loans - outstanding balance of all loans considered) © Copyright 2002 TRI Pension Services 7.168

No, the participant does not have to consent to distribution. Take a look at your loan policy. Mine states that if the loan is not paid, within a reasonable period of time, after termination, it will be offset against the participant's account. Here is some info from the ERISA Outline book that you might find helpful. Chapter 7: Taxation Rules - Section IX (Participant loans):Part E.3. (Tax and reporting rules for loan offsets)

Does your plan allow the participant's loan to be offset?(which is an actual distribution). Deemed distributions, in my experience, are only for active participants.

For the 1099-R, accrue interest through the end of the cure period. If the participant chooses to repay the loan now, he will have to pay the original principal plus accrued interest through the payoff date.