Disco Stu

The issue is more than likely not just "small print in the prospectus". All of the stable value funds that I've worked with (which are collective trusts, BTW) require the plan sponsor to sign a participation agreement. These participation agreements have a section that quite clearly lays out the terms under which the plan may completely liquidate the fund. Every one of them I've seen has language that allows for this 12 month delay.

#1 . Reverence to god.

That isn't my understanding of how the USPS handles short paid postage. The label on the package indicates that it was refused by the addressee. Though I do agree that haranguing them about this delay isn't likely to help my cause. Thanks for all the responses.

We recently filed 5558 forms for two clients. The forms were sent USPS, with a return receipt attached. Due to an error in calculating the postage, the package was returned to us, postage due. The timing of the return has me a little perturbed. The package was originally posted on 7/11. It was not returned to us until 8/8. We are resending the forms today. What are the chances that these forms will be considered timely filed? There are now two sets of machine printed postage on the package, the first of which is dated 7/11. My understanding is that the delay in the package being returned would have been caused by the IRS' delay in refusing it. I realize we made the error in applying postage, but this long delay in getting the package back seems unreasonable. More importantly, should I wait until these clients get late filing notices before pursuing a course of letter writing with the IRS? Or perhaps would it me more appropriate to include such a letter with the 5500 when it is actually filed? Thanks for any input.

I think that referring to this as “paying yourself interest” is somewhat misleading. Think of it as “reimbursing your account for lost earnings”. If you didn’t take the loan from your 401(k) account, that money would continue to appreciate at whatever rate the market dictated. If you do take the loan, now you’re responsible for funding that market value increase out of your own pocket. Whether you pay interest to the bank or pay it into your 401(k) account, you’re still paying that cost from some after-tax source of funds. If you take out of the equation the fact that equities traditionally outperform fixed income investments, and assume an equal rate of return for the loan and the 401(k) assets, you’ll see that the situation is a wash. There is no benefit to “paying yourself interest”.

I suppose if the person in my hypothetical had an irrational dislike of banks he might be swayed away from the commercial loan. Other than that, could you please illustrate the financial difference in the two scenarios in the hypothetical?

While you do “pay yourself interest”, this isn’t necessarily a savings over commercial borrowing. As a hypotherical, let’s compare a 401(k) loan and a commercial loan that have identical interest rates and fees. We’ll pick 6% as the interest rate. To further even the scales, let’s also assume that the participant’s 401(k) account will also earn 6% over the period of the proposed loan. Whether the loan is taken from the 401(k) account or from a bank, the individual is in exactly the same position after the loan is repaid. This 401(k) balance isn’t any different, he paid the same amount out of pocket for the use of the money, and his taxable income is the same under either scenario. The fact the individual paid the interest into his 401(k) account rather than to a bank doesn't affect the outcome. In reality 401(k) loans have other risks and pitfalls that commercial loans do not. There’s the risk that the loan would become taxable income (with a 10% penalty) if the individual lost his job and wasn’t able to repay in full. It’s also likely that the 401(k) account would outperform the loan and that the individual will end up with less money at retirement because of the 401(k) loan. Just to name two...

Just one other thing to think about... Loans from 401(k) plans are not always the cheapest borrowing available. Even if the interest rate is low, loan initiation fees from 401(k) plans can sometimes be quite high. Particularly if you're borrowing short term, a large loan initiation fee coupled with possible ongoing loan maintenance fees from your new 401(k) plan could make for a very high cost of borrowing. You might look into other commercial sources for a loan and compare the costs. Make sure you go into this fully informed.

In that case, I would submit that pretty much half of your sources are not so reliable after all. I will say that QDROphile's response was more testy than mine would have been, but you haven't exactly been a model of politeness yourself. You came to a professional message board telling us that you can't take the time to do a simple search function for your yourself, but you expect us to take the time to write you a response? Sad. Very sad.

So there are two issues here. The correct tax year for the distributions and the fact that it took AIG an extra two and a half weeks to get one of the checks correct. I think it's pretty safe to say that your chances of extracting any additional money from AIG to compensate you for the time it took them to get you that second check are pretty close to nil. The tax year for the distributions is more complicated. Once you are in constructive receipt of the income, it is taxable to you in that year. AIG’s position will be that once they put the checks in the mail to you (presumably 12/28/2006), you are in constructive receipt of that income. The fact that you didn’t actually receive the checks in the mail until January, 2007, is irrelevant. I would imagine that they’d also argue that the fact you were owed additional money was irrelevant to the fact that you were in constructive receipt of that income in 2006. The additional money (the improperly forfeited 40%) you were paid in the second check on 1/27/07 is another matter. I don’t see how that amount can be income for 2006. You could not have been in constructive receipt of this income until 2007. You may have trouble convincing AIG of this though.

The deadline for electronic filing of 1099Rs is 4/2/07, so it's possible that this form hasn't been filed yet. I agree with Jim though. Chances are that the 1099R preparer is correct and that the controller misunderstands the rule. It's worth finding out for sure though.

So, isn't the question that is ultimately being asked here: Does the divorce from #3 mean that the participant died without a named beneficiary?

Yes, but the example says that the distribution took place 3/1/2007. A 2007 1099R is required. I'd vote for option #1, but that's just my speculation.

I don't recall seeing requests for the type of information you reference in #3. Other than that, the remainder of those items are pretty standard requests from most auditors that I deal with. Frankly, for the last couple years, I don't think I've exchanged any paper with an autitor. Between PDFs and Excel spreadsheets, I can ususally get them everything they want.

If you want any help from us, perhaps you should care a little more whether we believe it. Perhaps you could have been more clear and less combative when asked to clarify what sort of paper you were writing. You were asked this multiple times (though one instance wasn’t particularly polite). This is a message board primarily used by benefits professionals to talk among themselves. We are often happy to assist lay people when we can. As a rule though, we don’t like being jerked around. I have no idea whether you’re telling the truth about your economics paper. I’m pretty skeptical though, and nothing you’ve said so far has done anything to dissuade me. Some of your posts, (particularly post #7 in this thread) imply to me that you have other interests in mind. And if it isn't obvious already, I'm not alone in my skepticism. Perhaps that says more about your attitude in this thread that it does about everyone else’s.