david rigby

Sounds like someone was trying to purchase key-man life insurance and thought the cheapest method (ie, tax-advantaged) is to use plan money for paying the premiums. (Just a hunch, there is an insurance broker somewhere who has the ear of the client/executive.)

You might want to read the plan and/or the SPD. I think both will indicate that the loan is an investment of the plan; ie, it's the plan's money being loaned, not your money.

Warning. Technical terms in use.

As a Moderator, I'll take this opportunity to comment about a previous post/exchange in this thread. Let's keep our discussions civil. Please. You know who you are. There is no value here in using demeaning words or phrasing.

Well, the premium is based on participants, but the eligibility is based on employees. From page 38 of the 2019 instructions: "Small-Employer Cap qualification – If the plan qualifies as a small-employer plan, the Variable-rate Premium may be capped at an amount lower than the MAP-21 Cap. Determining whether a plan qualifies for the Small-Employer Cap – For this purpose:  a plan is a small-employer plan if the aggregate number of employees of all contributing sponsors of the plan and all members of the contributing sponsors’ controlled groups, as of the first day of the Premium Payment Year, is 25 or fewer,  the aggregate number of employees is determined in the same manner as under section 410(b)(1) of the Code, taking into account the provisions of section 414(m) and (n) of the Code, but without regard to section 410(b)(3), (4), and (5) of the Code, and  employees are counted as of the first day of the Premium Payment Year, not as of the Participant Count Date or the UVB Valuation Date. Note that a plan with 25 or fewer participants does not necessarily qualify for the Small-Employer Cap because the eligibility criterion is based on employees, not the Participant Count. For example, if a plan has 15 participants, but there are more than 25 employees (taking into account all employees of all contributing sponsors of the plan and all members of their controlled groups), the plan does not qualify for the cap. Also note that a plan with more than 25 participants might qualify for the cap. For example, consider a contributing sponsor with 20 employees, all of whom are participants in a plan. If the plan also covers 15 former employees who are either terminated vested or retired, there are 35 participants in total. This plan would qualify for the cap (assuming there are no other contributing sponsors and no controlled group members)."

One hopes that the participant will receive a copy of the "Special Tax Notice" so he will have some information about taxation. Perhaps he will even consider doing a rollover, thus giving him a greater degree of control over the timing of his taxation. Perhaps he will even consider spreading his IRA withdrawals over 2 (or more) years which might help to minimize the tax impact.

At the risk of being picky, before making any payment to the participant, make sure he has reached a date on which payment could be made. Just because he "...has now terminated employment..." does not automatically mean he can be paid now. RTDD.

Um, is there a potential incentive behind this "encouragement"? As CuseFan implies, any similar plan provision might be in the best interest of the advisor, not necessarily in the best interest of the participant.

Has a 5500 been filed? If prior 5500's filed, and no PBGC filing, it seems likely someone has already received a letter of inquiry. Is it possible the plan is exempt from PBGC?

Piggybacking on Luke's comment, is the intention to redefine NRA as (for example) 50/20 or age 65?

No. Inquire whether there is anything to be gained by changing the plan year.

Agreed. But I read the OP as if (1) and (2) are never going to apply.

Is it reasonable plan design to have a one-person plan with a vesting schedule? (I know there is at least one reason for doing so, but the orginal post made no such reference. Absent that, seems unnecessary.)

Data as of 08/30/2019 (Friday) Moody's Daily Long-term Corporate Bond Yield Averages Utilities Industrial Corporate Aaa NA 2.85 2.85 Aa 3.07 2.85 2.96 A 3.19 3.21 3.20 Baa 3.53 3.99 3.76 Avg 3.26 3.23 3.25 Moody's Daily Treasury Yield Averages Short-Term (3-5 yrs) 1.40 Medium-Term (5-10 yrs) 1.44 Long-Term (10+ yrs) 1.87 Observation: Comparing the Avg rates to 12 months prior, current Bond rates are about 105 points lower. Comparing the Avg rates to 6 months prior, current Bond rates are about 110 points lower.

This prior discussion may be relevant to you: https://benefitslink.com/boards/index.php?/topic/62193-refusal-to-participate-in-dc-plan-maybe-religous-reasons/

For almost all situations, the plan document is superior to any summary of it. But different descriptions could imply there are other documents worth looking for, such as a plan amendment dated somewhere between your 2 dates. If you found such intervening document, it would explain the difference, but not alter my first sentence.

Probably a can of worms I should just avoid: if the amendment has no practical effect due to 415 limits, why is it being done?

This might be a case where the amendment was poorly drafted. Or not. IMHO, you should follow the plan document. Likely, this will mean no credit for the short PY; ie, don't impute proration if it isn't there. However, it's probably very important for someone to ask the plan sponsor: what result did you intend? It's possible an additional (clarifying) amendment is the solution.

It may also help to read (or re-read) the plan's Summary Plan Description (SPD).

A salute, and thanks, to you sir. And I'll be glad to eat one (or more) of your cookies.

Does participant expect to receive a cash distribution? What if he takes the distribution as a rollover?

Similar discussion:

83 GAM at 6.5% is about 132.7 F / 114.8 M. To be of assistance, we might need more info.

Consider whether this plan provision is what the plan sponsor wants. For example, when "stuck at 415", pay the benefit? (The answer to this question might depend on the relationship between the EE and the decision-maker.)

Luke suggests the "group likely has good health risk". That might be a reasonable assumption about the "executive group". Beware that the average COBRA enrollee is often less healthy than the average employee. Beware of the precedent that might be set when trying to address one person's request.