masteff

And that was the position that we used to take, but after extensive discussion w/ our recordkeeper/trustee, we switched our point of view. In one point of view there is a single lump sum distribution, part being rollover and part being MRD. In the other point of view, there are two separate distributions, one being a lump sum and one being a systematic distribution; the argument being that even if paid simultaneously, the MRD portion is still calculated on a systematic basis and does not lose that systematic nature. Which point of view you take may also be a matter of what your system can accomodate. In a highly automated system that forces the MRD to be taken prior to any other distribution, it's going to effectively force you to the later point of view. Whereas a less automated system would allow for more individual discretion in how the after-tax money is allocated (to the extent the plan text provides such discretion).

As I already said... The original poster stated they have treated the MRD's as prorata for the last couple years, therefore, unless the plan explicitly gives the participant the right to choose a source hierarchy for a withdrawal, then the participant has no right, under the plan or under Q&A-9, to dictate such.

Um, sorry, but I'm confused. You were the one who brought the PLR into the discussion.

I understand your point and a couple years ago I felt the same, but we found specific reasons having to do w/ the various complicated rules on recovery of after-tax monies that precluded an MRD coming solely from after-tax source. This was a very large debate w/ our recordkeeper and trustee. As I noted, I don't have access any more to that research to be able to recall the Code in question but it was very much an issue about after-tax recovery and how it applied to MRDs. Which is partially why it might be nice to see that PLR you referred to... to see if it gives any hints on where else to look.

Does anyone know the number of that PLR? Might be worth a quick read. My thought is Q&A-9 doesn't create a choice whereby the participant can specify the source of the distribution where such a choice might not exist in the plan. It merely says the non-taxable portion of a distribution is counted towards satisfying the overall MRD for the year. We had this debate once... final position was after-tax amounts in MRDs come out prorata as you are doing. Unfortunately I can't give you good cite as I've changed jobs since then. Might review your plan text. You've been doing the MRD's prorata. Unless the plan explicitly provides the participant w/ the ability to specify the source of the distribution, then I wouldn't change at this point.

The amount doesn't change due to lateness of distribution.

The problem as you know is that living expenses are not typically deductible medical expenses, so not eligible for hardship under that safe harbor provision. Better to go the "prevent eviction/foreclosure" route... Many participants don't like to hear the following but it's actually about the best way to work this scenario.... he needs to not pay his mortgage on the next due date and then call his lender for a letter by fax stating he's now past due and must come current to avoid foreclosure (most lenders won't provide such a letter until after the due date, but will often do so during the grace period). The Service typically is fine w/ allowing the participant to receive the past due amount plus 2 months forward (plus gross up). The part would be 1 month past due plus 2 months forward which would give the 3 months being asked for. As to the property taxes, they're a little tougher, typically have to let them go unpaid and wait for a letter from the tax authority which will typically refer to ultimate penalty of tax lien and/or seizure. One thing to look at is does the plan allow more than one hardship per year... in which case the part could get the past due property tax as a separate w/drwl from the past due mortgage money. Also, if 3 months of mortgage ended up not being enough, then he could repeat the process after the months provided by the w/drwl had passed (he goes past due in Sept and gets $ for Sept, Oct and Nov; he could then go past due in Dec). Participants don't like letting their bills go unpaid but they have to understand it's not a hardship in the IRS's eyes until they're actually past due. Remind him that his mortage likely has a 15-day grace period, during which time the payment is technically past due but not yet reported to the credit agencies.

My former company had a full plan audit a couple years ago (three 401(k) plans w/ combined assets around $700M). Those plans use prime as published by US Treasury. (Not even prime+, just straight prime.) No questions or issues were raised about this rate, which was clearly described in writing in our loan rules. Similar to Belgarath's caveat, not getting questioned in audit is not the same as being blessed by the Service, but certainly is a good indicator. On a personal note, I'm probably more in favor of prime+ than just straight prime. +2-3% certainly is reasonable.

Here's my take on your question: I looked at PPA 2006 Section 824 (http://www.dol.gov/ebsa/pdf/ppa2006.pdf) and noted that the actual change was made to the Roth rules and not the qualified plan rules. So, once the money is out of the QP, it's simply a rollover and doesn't matter if they were participant, spouse, or non-spouse bene in the QP. Meaning, w/out seeing the final rules from the IRS, anyone who can make a rollover will be able to do so to a Roth (subject of course to the already existing restrictions on Roth rollovers like the $100K modified AGI limit).

Ah, I missed that nuiance too (that it's the bene's who are now missing). I'd say yes, but you need to take the normal reasonable steps to try to reach them (including using the IRS's service to send them a letter asking them to update their contact info w/ you).

You're getting out of line. She asked a valid question about an upcoming change that is a result of recent legislation. That fact that you were unaware of the change to Roth rollovers is no reason to be hostile. Looks like you need to do some learning about new laws and regs yourself.

Just make sure it's a document worth perpetuating.... I've been on the tail end of spin offs done this way and the original documents were junk that we had to live w/ for years and finally paid big money to have restated.

I agree w/ others that everything sounds on the up and up to me. They had no reason at all to notify you that your ex started to receive his benefit. Your ex is mistaken that you have "20-25,000 waiting". Your benefit starts when you start it, not when he started his. And your benefit will be adjusted accordingly. When you get your paperwork, you'll likely see an age 65 benefit amount and it will likely be reduced because you are starting prior to that age (or really when your ex would have been 65, but you see what I mean). The longer you wait, the less that amount is reduced. For comparison, you might ask the plan what the reduction would have been if you had started your benefit 3 years ago. You might also ask them if there is a date earlier than age 65 that you can receive the full benefit w/out reduction (since your ex retired early, this is possible depending on their plan's rules).

Please clarify if you're discussing a DB or DC plan. You refer to flexibility which makes me assume DC, but then you refer to annuities and C&C's which are more closely related to DB's.

At risk of repeating myself...

I presume it's an investment in a self directed plan (more likely to occur in a Keogh than in 'traditional' pension plans). I suppose the other question I should ask is if there was Canadian earned income that was ever used in the plan? Hmm, J4FKBC raises a potentially problematic issue w/ whether it was an allowed investment. It's really a question for the Canadian tax service, but pension is in US, participant is in US, so no logical reason for taxation in Canada, but since when were taxes logical. Participant will likely need an appraisal to value the distribution, which would establish his basis in the property. Website with telephone number for inquiries from the US about Canadian taxes is here: http://www.cra-arc.gc.ca/contact/international-e.html That's really my best suggestion.

Is the participant in Canada too, or just the property? (By the way, my glib response was going to be "property taxes". )

I've not re-read the "party in interest" and "prohibited transaction" language so I'm not commenting in that regard. HOWEVER, don't let circular logic (ie a Catch-22) take over your analysis. "We'll pay to provide this service to the plan but then you're a party in interest and we can't pay so then you don't provide the service so then you're not a party in interest so then we'll pay you to provide this service to the plan (repeat)" Part of your analysis needs to look at the relationship absent of the transaction in question. Aside from the loan, what is the relationship of the lender otherwise to the plan? And on the later, the exemption short circuits the logic (ie end of analysis). And, see the preceeding. Aside from the initial contract, what is the relationship of the service provider otherwise to the plan?

I agree. Eviction is a logical and foreseeable consequence of a sheriff's sale.

We should end this here. The back and forth appears to hinge on whether one accepts that IRC 72 investment in contract should apply to the self-employed individual. Both sides have stated their cases but neither side is willing to conceed key points. Therefore, this will continue indefinitely as a ping pong match. Let's agree to disagree, as we have given the original poster two lines of thought which he can provide to his client in question.

afcjags - Is there a reason the company wants to make the match in stock versus cash? Is it the "cashless" nature of the transaction as four01kman alludes to? Because as four01kman also points out, a reason for stock match is to motivate employees to add to the company's performance, but if that stock is cashed out before it hits their accounts, it becomes a nonrelevant factor.

Just to clarify, I think what Janet was originally proposing was a more simple communication, which didn't have to meet the more rigid requirements of an SMM. (I personally pictured two sentences, "Loan payments on new loans will be weekly instead of monthly. This does not effect existing loans.")

Um, no, on the investment fund thing. A loan is an asset, but it is not an investment. Here the problem is that it's not liquidatable for purposes of a distribution. Rather it's a reserve for what's receivable from the employee. If the employee terminated and cashed out today, would you give him cash for the loan balance? No, because there's no cash in it to give him. So how can you give a hardship out of it? Your original post indicates he has other sources of money still existing in the plan. Austin's suggestion is the only valid one... find a way to reclassify the loan from the deferral source to another source. Many plans with multiple sources of funds establish source heirarchies. Typically, loans come out in the opposite order of withdrawals. This allows the maximum amount available for withdrawal to still be in the account after the participant takes the loan. Have you reviewed the plan doc to be sure there's not a heirachy stated which might allow you to reclass the loan source?

SoCal, just wanted to voice my agreement with your analysis. In fact I had posted on this thread that this meets in general the "investment in contract" discussion in IRS publication 575. However, as about 5 people immediately took issue, rather than waste the breath arguing I simply deleted my post. But now that you've provided the proper section, IRC 72... To quote pub 575 "This includes the amounts your employer contributed that were taxable to you when paid." Since MJB established above that the IRC says the self-employed person is treated as his own employer (and since he established that IRS pubs are valid citations by using one himself), then we can conclude from what we are told by IRS code and sources that since the person had to pay tax on the contribution (because it wasn't deductible) then it counts as investment in contract.

You're on the right track. The way it would work in that scenario is each employee would have a chuck of cash to choose what to do with, they could use it to elect benefits under the cafeteria plan or take it as cash. That's the catch, the law says they have to have the option to take it as cash. So unless your bosses want employees to take cash, then it's bad idea. The cafeteria plan won't help offset any costs as long as the employer insists on paying the full cost of coverage. BUT, if they ever decide to have the employee pay part of the cost, then you would set up a 'premium only plan' or POP cafeteria plan. In a POP, the employee elects to put cash equal to amount of their premiums into the plan and that lets them pay the premiums with pre-tax money. The employer still pays its part outside the plan, just as they are now (preventing the employee from taking it as cash instead of coverage).