thepensionmaven

We had a participant in a plan take a loan, paid three installments and defaulted on the loan. The the plan terminated, we have paid out all but three participants and I noticed that the investment company is carrying an accrual for the unpaid balance of the loan. This makes no sense to me, the loan is out of the plan, the participant terminated employment prior to the plan termination, the participant defaulted and was issued a 1099R. What am I missing here??

Oh, I neglected to mention, this is NOT a PBGC plan.

Thanks, Effen. Please correct me if I am missing something here: From what you are saying, the lump sum based on the actuarial assumptions for providing the promised monthly benefit that the hypothetical account balance will throw off based on plan actuarial equivalence. Since this will cost more, depending on the actuarial assumptions as well as guaranteed rates of a particular insurer contract, the client is on the hook for the additional cost. Granted. Would this come from the company and/or any additional waiver for each of the three partners, as the remaining participants can not be affected. My deferred annuity experience from insurance company days is usually offered when a participant is making ongoing contributions to a DC plan. How does one defer the decision to take the annuity when he must do "something" with the benefit that is due? Or is he buying an annuity that promises the payment at his NRD? These points may seem elementary to you, but as has been stated, I have never in my 35 years experience had any participant elect any form of annuity payment as a termination distribution; from an ongoing plan, yes. Thanks for the education.

Agreed, but you can't legally talk them out of it. Let's assume a worst case scenario - a participant elects the annuity of "x", which equates to the lump sum. The annuity could cost more or less than the actuarial equivalent. At that point the plan would either pay more or less than they would have if the participant had elected the lump sum. This would cause a recalc obviously. How would this be handled. I would think the plan would need to make up the difference and the owners would have to waive any difference. Alternatively, I would think, any windfall would ensure to the remaining participant, not including the owners. But, the plan is short on a termination basis both because they have only contributed closer to min than even recommended and client must come up with something like 400k which they should contribute prior to any distributions to the other employees, I assume no one should be paid until. ALL election forms received and the owners waive at that time. Then can all be paid. Who then is the owner of the annuity, and is this an immediate or deferred annuity. I would think the actuarial equivalent as of the termination date would be deferred? As you can surmise I have had no experience of a participant electing an annuity.

Agreed, but you can't legally talk them out of it. Let's assume a worst case scenario - a participant elects the annuity of "x", which equates to the lump sum. The annuity could cost more or less than the actuarial equivalent. At that point the plan would either pay more or less than they would have if the participant had elected the lump sum. This would cause a recalc obviously. How would this be handled. I would think the plan would need to make up the difference and the owners would have to waive any difference. Alternatively, I would think, any windfall would ensure to the remaining participant, not including the owners. But, the plan is short on a termination basis both because they have only contributed closer to min than even recommended and client must come up with something like 400k which they should contribute prior to any distributions to the other employees, I assume no one should be paid until. ALL election forms received and the owners waive at that time. Then can all be paid. Who then is the owner of the annuity, and is this an immediate or deferred annuity. I would think the actuarial equivalent as of the termination date would be deferred? As you can surmise I have had no experience of a participant electing an annuity.

We are in the process of terminating a clients' cash balance plan. The sum of the account balances will be equal to the value of the investments once the 2019 contribution is made. I realize that as a DB plan, we must give each participant a relative value disclosure of their options, ie lump sum, annuity, 10YC, etc. ,etc. I have never administered a DB and a participant elect any sort of monthly benefit. They have either elected a lump sum to rollover, or a lump sum to be cashed out. My software vendor's program provides the options and those dollar amounts that must be offered to each participant The client is asking what does he do if one of the participants does in fact elect a monthly benefit. If the plan is terminating, where do those options come from? I could understand an on-going plan paying an annuity for the life of one of the participants out of the plan investment account; if the plan is terminating, the monthly payments can not come from the plan. If the participant takes the lump sum and buys an annuity, depending on interest rates, the lump sum very well will throw off a different monthly annuity amount than what is shown on the relative value disclosure. Question from one who has not dealt with this issue in the past, how is this to be addressed?

I believe this was discussed in another thread quite a while ago, but... Plan participation as the January 1st or July 1st following completion of age 21 and 12 months of service. Participant hired 1/2/2018. Eligibility computation period is 1/2/18-1/1/19. Would not the individual enter 1/1/19, rather than 7/1/19?????

Plan has loan feature, 2019 first year any loans. Looking at the fundholder annual report, is reflecting loan repayments in the total contribution made during the year. Is this correct?

I would think, either: 1. They don't know what they are doing, and shouldn't even be doing it, or 2. They have been instructed that only one deposit equal to the max plus catch-up is allowed during the calendar year. 3. Since contributions must be made online, the principal is not coding the contriubtion with a payroll date of 12/31 of the year they are making the deposit (and deduction) for.

Client is in the process of terminating his CB. As far as election forms, I assume the options must be enumerated in similar detail to a straight DB, ie can't just give the lump sum option and spousal waiver (as in a DC).

This is a PLLC, and they are partners. Yes, There are too many ways to mess something like this up. The carrier is AXA, and yes, they are returning w/o asking. When either the client calls or asks me to call, they tell us the client over-contributed to the salary deferral portion for the year. Apparently they think that only one salary deferral maximum is allowed per year, but the client is always on accrual. Everything seems to be recorded on a cash basis by AXA. I can only assume the client is coding the contributions as current year, ie if the contribution is made in 2019, they are coding it as 2019; I keep telling them to code the prior year with a date of 12/31 of the year they are contributing for, not in. Other than that, I think that would be the only problem?

We have a SHNE 401(k) plan, 2 shareholders, 10 employees. The clients is on extension every year and they contribute in September for the previous year. The accounts are investment only with a major carrier. The carrier has returned the elective deferrals of the shareholders telling them they have over-contributed for the year. It has been my understanding that, as long as there is an election by the participant prior to the end of year, he has the ability to make the deferral contribution for the previous year. Of course, this could be incorrect. Does anyone have a cite??

This isn't a CB plan, effective date is 1/1/19, vesting based on participation. Doc says eligibility age 21, 1000 hours, no obviously not eligible. TX.

We are designing a new DB plan. Company been in business for quite awhile. Effective 2019, document signed prior to 12/31. There is one employee that terminated in 2019 and had 692 hours. If service for vesting was defined as service from effective date, obviously not vested, but would she get an accrual for 2019 as she worked >500 hours??

I know it's not required, and has never been an issue in my 35 years in practice, but in this particular case, the client has a habit of not distributing what he should and the accountant wants to be absolutely sure the participant in fact DO receive. Question to Bill Presson - "it was complete overkill"? I would think it more of a CYA for everyone involved, client, CPA as well as TPA.

I don't think this is the proper forum for the question, but ... do TPAs ordinarily require that a participant sign that they received a copy of an SPD? If so, any samples available?

I would assume a "takeover" of investments?

True, Form 5500-SF or 5500-EZ does not have to be filed until the assets exceed $250,000, but the Form is needed upon termination, with $0 at the end of the year.

Also applies to Form 5500-SF, check the instructions.

Isn't his what the SAR is for, and I would think this is the only thing she is entitled to see, besides an account balance statement showing her portion of the combined accounts?

We took over a profit sharing plan with 3 pooled accounts. We have not dealt with pooled accounts in so many years, I do not recall how this had been handled. In the past, participants had been given account balance statements combining the total of the three. Like most plans, December lost money. One participant is questioning her % of the loss and wants to know not only her breakdown of the three accounts (2 are CDs and one is invested with a broker), but her breakdown of the underlying investments in the brokerage account. Furthermore, she says her attorney told her she has a right to see her portion of the breakdown of the underlying investments in her account balance statement.

OK, let me start over. Accountant came to me with a prospect. Three employees of a law firm terminated and formed separate PLLC on 7/1. Two are sole proprietorship PLLC, the third PLLC is a partnership consisting of the two partners. Doesn't make sense, but rather than have three separate plans, the accountant wants one plan with the three PLLCs, two of which will be taxed each as sole props, the third as a partnership. This whole situation is very "interesting" and we are trying to find a way, if possible, for this to work. They each contributed to that firms 401(k), so any contributions would come off the 402(g) max for the year. Plan could be effective 1/1/19, but income for contribution would have to be from 7/1-12/31/19 obviously. The elections for the plan would need to be effective prior to the end of the year, obviously we can not have 1/1 and 7/1 entry date, which is why I mentioned 6/30 and 12/31 - they come in the last day of the year. Who will agree with me that none of this makes any sense??

Larry, have you ever seen a 401K with entry dates of 6/30 and 12/31 before???

The "problem" is that I have never seen a "tested" (non-SH) done so late in the year. I would assume, though, the deferral elections are to be made prior to 12/31/, then they have the due date of their returns to make the contribution. I don't know what a disregarded entity is? Disaggregated? Definitely controlled group. I've never done one plan for three (3) employers before, two at the most, but it was a MEP with Dr. as PC and a sole prop. Who would be the sponsor?? Sorry for my ignorance.

Yes, changing the ownership should be, I'm just thinking if the insurance company does not within a reasonable time frame prior to 12/31. But then again, the cash value of the life insurance has never been accounted for,