Brenda Wren

Thank you, Artie. The answer is calculated more easily than I thought! The harder question is how to avoid a deemed distribution when consolidating the loans. What is the latest maturity date you could apply to the consolidated loan (assuming recordkeeper can only accommodate one loan, with one maturity date and one interest rate)? April 30, 2028 would surely do it, but is there a later date than would work also?

Peter, no, allowing multiple loans does not allow a participant to exploit a weakness in the loan limits. The loan limit is 50% of your vested balance, not to exceed $50,000, reduced by the highest outstanding balance in the last 12 months. The latter part of that sentence ensures that the participant pays back the loan and doesn't have a perpetual $50,000 loan outstanding. And the refinancing rules are there to prohibit exactly what occurred in my example. We are getting away from my question for the pension geeks! The refinancing rules are very complicated and normally I can do these calculations when there is just one loan (maybe two) outstanding and it is being refinanced to either reduce the interest rate, extend the maturity or take out additional funds. Where is Sal Tripodi these days? Retired!

Yes, if the goal is simplicity, one loan at a time with NO ability to refinance is best. However, that is not the goal for this client. Zeller is on the right track. Hoping someone who is an expert in the loan refinancing rules can determine the amount of the deemed distribution.

Participant has 4 loans outstanding; all were taken for 5-year terms. Vested account balance exceeds $100,000. Current loan balance, rate and maturity date: $8500 at 8% matures 4/30/28, $4000 at 8% matures 9/30/28, $4700 at 8% matures 5/15/28 and $20,000 at 6.75% matures 4/30/31. Loans are consolidated at current rate of 6.75%, new balance of $37,200 with a new maturity date of 6/30/31. Does this loan consolidation exceed the loan limits and if so, what is the amount of the deemed distribution?

FWIW - I recently had this exact problem and posed it to our "experts" for a service we subscribe to. The attorneys there said that if the accounts had not been forfeited timely it was too late to forfeit them once plan termination was underway. Quoting "if it hasn't yet been reflected as a forfeiture on the books and records of the plan, I would say it is fully vested". The plan termination date was 12/31/25 and the question was asked on 12/26/25.

How can a property he owns in Austrailia be a primary residence unless he is working remotely from home in Austrailia? Seems to me that if he lives in the US for more than 6 months, his primary residence is in the US, regardless of whether he owns or rents in the US.

Is there anyone out there who has Plan Sponsors that have "deemed Section 125 compensation"? And if so, how do you know about it and where is it reported in the payroll records, assuming it is?

Thank you, David. The only reason the J&S rules are in the plan is because the old MPP was merged back in 2002. They did not limit it to only old MPP in the previous restatements because they just thought it would be easier! Well, it's not easier now that we are terminating! The recordkeeping has separated the money types so it's very clear who has old MPP money and who doesn't. I'm thinking that we can amend the plan to remove the J&S rules at least to the extent of non-MPP money. That may reduce and will certainly limit the problem. As I recall, we are permitted to do that without notice. Thoughts on that idea?

I don't do DB/CB work and don't normally have to deal with J & S rules. However, I have a terminating DC plan with J & S in it. If a participant is unresponsive or the spouse refuses to sign, it appears that we have no other choice other than go to the marketplace and buy an annuity for them. Is there any other option? Penchecks says they will handle funds over $7,000 for terminating plans but if the participant doesn't respond, they don't buy the annuity....they move them to an IRA and thereby ultimately are bypassing the spousal consent rules. Since the plan isn't covered by the PBGC, we can't move the funds there. Any other options?

Thanks again to responders! We decided to provide the former participant with a letter stating that as a former participant with no benefits in the plan now, she is not entitled to receive an SPD at this time. We provided a copy of the last statement she received which reflected the amount she was paid along with the check number and date of her benefit check which was rolled over to an IRA. We stated that we do not maintain historical copies of SPDs. We think she met with SSA in-person as she was never reported on Form SSA which would explain why her request was stated the way it was. We do have copies of historical plan documents but did not provide that to her.

Thanks for the comments. It appears that the letter may have been prompted by her application for SS benefits as she states "as recommended by the SSA" in her letter. I am unaware of any such comment in the SSA letters I've seen. She further states that the US DOL EBSA has requested that she obtain the SPD. This is ridiculous.

My new client received a certified letter from a former employee requesting a copy of the SPD from the years in which she was employed (not necessarily a participant), 1997-2003. Since I was not the TPA I don't have the SPD and my client doesn't think he has it either. She was paid a benefit of about $50K in 2005 and apparently is not disputing that. Is my client obligated to provide the old SPD from 23 years ago to the former participant?

Belgarath, I think you're right....I'm finding more on it....looks like it was clarified that distributions from the Roth portion do not satisfy the RMD after 12/31/23. Thanks for responding.

I understand that new rules starting in 2024 disregard Roth balances when calculating RMDs. I also understand that an RMD is not required from a 401(k) if all you have in the account is Roth money. However, I am not aware of any rule prohibiting you from taking your RMD from the Roth portion of your 401(k) if you have pre-tax and Roth funds. Two recordkeepers (so far) will not allow you to take an RMD from Roth. Am I wrong or are the recordkeepers wrong? This excerpt from the IRS FAQs seems to agree with me. Q11. How are RMDs taxed? The account owner is taxed at their income tax rate on the amount of the withdrawn RMD. However, to the extent the RMD is a return of basis or is a qualified distribution from a Roth IRA, it is tax free.

My client has a 2-person 401(k) with non-qualifying assets. The plan covers the business owner and his girlfriend. We have been filing Form 5500SF. They are not legally married but are "legally domestic partners". Not sure what that means. For years now we've been advising him to obtain the very expensive bonding needed to qualify for the audit waiver. It's time again to pay the premium again and he is questioning the need for the bonding based on his domestic partnership status. Any comments, experience or thoughts to share?

Can anyone explain why IRA custodians request the "first year of Roth" when a Roth 401(k) is rolled over to a Roth IRA? The 5-year clock starts over when Roth funds are rolled over from a 401(k) to a Roth IRA. Besides the fact that I also don't understand WHY the clock starts over, why is this data collected?

David, many thanks for this great publication. I read it every day although sometimes I only have time for the headlines. Remember you fondly from your Orlando days. Thanks a bunch! Love the comment "ERISA and an eraser"! Too funny!

You could have established a separate plan and accomplished that.

Thanks for the input, CuseFan.....no concern with that issue at all in this case.

I have a small dental practice plan. Sole owner is married with a minor child to spouse who has a sole-proprietorship business earning about $100k annually with no employees. Both spouses participate in the plan, make employee deferrals and receive a SH match. With the change in the rules for 2024, since the spouses no longer have to aggregate for testing purposes, I guess I now have a multiple-employer plan going forward. Sole-proprietorship will be desirous of funding a PSP contribution on top of the match. Other than changing the employer type on the 2024 Form 5500 and adding the MEP addendum, is there anything else required on the government reporting side or the plan document side?

Not opining, but I can tell you that Datair does exactly that. If you are processing payroll in Datair and calculating the match every pay period, it will not calculate the match if a participant's compensation has gone over the limit. Fortunately, I only have one plan like that and it has a true-up provision in it. So all is well in the end.

Thanks, Lou. Appreciate your input. When I pushed back with the auditor, she did admit that an independent appraisal was not required, but that the Trustee has an obligation to determine FMV annually. So we usually advise our clients to get comparable sales or SOMETHING to justify the value they place on the alternative assets each year. We don't need to see it, but we tell them to keep it in their records.

Quite a few years ago I sat audit for an EZ filer. Although we had always advised him to value his real estate investments at Fair Market Value each year, it did not take our advice. Consequently, the very eager IRS agent sanctioned him $15,000 (after negotiating from $25,000) for failure to do so and for carrying the real estate at cost year after year. No harm to anyone, no issue with RMD's, but she wanted to get him for something, or so it seemed at that time. I remember her coming into the office on September 30, picking up the check for $15,000 before she went on furlough the next day. Obviously, a very unpleasant situation and I posted on this Forum about it at the time. Fast forward to today. I have a new EZ client who has real estate in the plan and has never been told by his prior TPA about this requirement. So I went looking for it in the IRS 5500 instructions. And what do you know? The blurb about "fair market value" is included in the 5500SF instructions with a reference to ERISA section 3(26). But it is NOT in the instructions for the EZ form! Is it possible that EZ filers are not subject to this rule since those plans are not subject to ERISA??????

I was taught that, too! Thought I was losing my mind! American Funds Recordkeeper Direct will not accommodate.....at least not without doing 2 loans! Thanks for responding.

Technically, it's an employer contribution. Move it to the forfeiture account, if recordkeeper will let you. If entitled to other employer contributions, move to another source.