Mike Preston

OR THE PLAN IS DISQUALIFIED.

6. If the age is uniform (and 65 and 5 YOS satisfies that definition in the regulation) did you really get an answer other than yes? Or was it that if the definition is NOT uniform then you use 65 even for those who would have a retirement age of 66 under a 65 and 5 YOS definition because, well, there is something that causes the definition not to be uniform (like the lower of two ages, one of which is determined with respect to 65 and 5 YOS and the other is determined based on something else)? 7. Not a problem. 8. If you want to use 65, then do something to your definition that pushes it out of being uniform.

Yuck, yuck... I think the effect is identical, which is why I'm not concerned about it. In fact, I think every loan policy should have that in it (feverishly looks at own policy to see whether it is currently there.....hmmmm....no comment). Otherwise, what happens? An individual goes on maternity leave, having gotten pregnant in the 5 year period and can not continue to pay on the loan? CALL THE EEOC! THE DOL! THE NOW! Seriously, that just can't be right.

Any participant who has a reduction in compensation such that payroll withholding is insufficient to enable repayment of the loan on a timely basis. It wasn't the formulation that I went further with. It was the conclusory statement as to it being non-discriminatory which went further than merely saying it was "ok".

Masteff, I don't think anybody disagrees with you. Guru was just laying out another possibility if the documents were in accordance with his assumptions. If you find out that the documents are not in accordance with his assumptions, his rationale has no applicability.

Pretty big jump there. I didn't say that loans would necessarily be available to everybody who didn't have payroll withholding available. I said that not having payroll withholding available can be something that does not have to eliminate eligibility for a loan. See the diff?

This is generally referred to as the "BIL" design. Where BIL stands for Brother-in-Law. It works just as well for a girlfriend (or boyfriend) of the owner. 49%, huh? Seems low. Remember, 415 is 100%. Maybe that was all that was needed to pass!

I would go further. Payroll withholding being unavailable should be a non-discriminatory requirement it is ok to add.

Guru, now we are on the same page. In this case, it appears the participant was terminated and entitled to a distribution long before 2007, although not necessarily in 1998. In any event, assuming the plan's procedures provided for a default and assuming the participant was entitled to a distribution, we then look to the procedures one last time to see whether they provide for a reduction of the account balance to reflect the defaulted loan. If they do, then the right thing for the plan would have been to show a participant statement with the loan nowhere in sight. This participant, admittedly kept out of the loop by an ex-spouse that was not kind enough to notify the plan that statements were being sent to the wrong address for years, nonetheless admitted receiving a statement about a year ago with the loan still firmly in place. That would have been the time to raise the red flag. Perhaps that WAS the time that the participant raised the red flag.

No. Remember, you originally posted on the theory that you were dealing with an instruction to distribute only partially. In fact, as has been pointed out, this is a complete distribution from the plan. You are only using the word "partial" to refer to the fact that some of the distribution is going one place and the balance is going another. In such a case, the Code is clear. Roll all the taxable. However, had you been speaking about a true "partial" distribution from a plan, then you would look to 87-13 or 87-16 (I always get them confused until I look them up... be my guest) to see what the rules should be with respect to withdrawing *some* of one's account. What I think it said, is that a plan had to decide whether to follow current law (a partial distribution is made on a pro-rata basis between tax and after-tax) or whether it could follow pre-existing law (all from the non-taxable pot until it is empty). Once the *plan* decided, then *all* subsequent distributions had to be treated the same. But, to reiterate, this is all gibberish to you, because you aren't asking for a partial distribution at all.

Guru, I'm sure you meant well, but I certainly don't understand what you are getting at. You seem to be saying that if the account balance (not including the loan) was $50,000 and the loan was $10,000 (so the total was $60,000) you would then "reduce the account balance (not including the loan)" (which is $50,000) by the loan. Did you really mean that?

We need a poll. How many people think that this is the participant's fault? Now that we know he was divorced maybe we cut him a little slack? OK, what is this participant's IQ? Curious minds want to know!

First, I thought you were the Terminator's relative, but then I found out you were related to Ted Kennedy. Hey, are you Maria Shriver?

Have you been bugging my office? I've used that method for YEARS.

Rob, you need to read what Blinky wrote (twice). The only way that those who are otherwise excludable end up with a gateway contribution being required is when the document has a flaw and attempts to craft language dealing specifically with the gateway requirement and does so in a way that ties the hands of the Plan Sponsor. This has nothing to do with SH. Nothing to do with TH. In fact, it has nothing to do with otherwise excludable. In other words, you don't even reach the determination as to whether one might be able to test on the basis of excludable/otherwise_excludable because if the document flaw exists, it takes away the advantage of testing that way. If the document is drafted in such a way that says: "Hear ye, hear ye....... If you cross test there shall be a minimum allocation to every NHCE in this 'ol plan equal to X% (for a definition of X, see Section Y which will tell you whether it is 5% or 7.5% or somewhere in between)" then you are stuck with the gateway contribution for everybody...period. If you don't have that section in your plan, then you can arbitrarily decide to test excludable/otherwise_excludable (unless the plan precludes THAT, in which case it isn't just badly worded, it is POORLY worded). If you do test excludable/otherwise_excludable then the gateway is required for either or both of them based on whether either or both of them cross-tests. Period.

You only lose ABT if you utilize the process in a manner that causes you to lose ABT. Hence, if you always provide a number greater than zero for each eligible class, you have no reason to exclude ABT. If you define your allocations such that the only people who get zero are those that would otherwise constitute a reasonable class, you have no reason to exclude ABT.

I'm not sure the participant wants to be known as a troublemaker in all of this, but if he (she?) does, it seems like the plan has made ample disclosure that its procedures required a default in or about 1998. Failure to follow those procedures is clearly a violation of the plan's terms and subjects the plan to EPCRS. So, the plan appears to have a choice, treat the default as having taken place in 1998 and let sleeping dogs lie or suffer the slings and arrows of an EPCRS filing. Can the participant start the process by identifying the operational error in a draft letter to the IRS? There is a part of me, though, cold hearted actuary that I am, which says that if the participant has been receiving statements 'lo these many years showing a loan balance in his/her account, is there some joint responsibility here?

Been doing it for years.

Inaccurately.

I have NEVER heard of such a thing!

Tom, I'm not sure what you are saying is correct. I don't recall when the loan regulations were finalized, but I thought it was significantly later than 1998. As such, I think there was ample opportunity for random results during that time period. I also believe that loans originated before the regs were finalized were left untouched by the final regulations. Since you have the paying client, I'll let you look that stuff up and let me know whether my memory is faulty. If it isn't, then the result might be that a default occurs when the Trustees say it does, and not one minute before. Even if said default takes place, oh, 9 years after the last payment.

Well, I have enough respect for her to say that if she believes it can be done, then there is a high likelihood she has it on good authority that it can be. Does she?

As well he should be if he claimed it as income. Perhaps yet another compromise. Allow the participant to stipulate, under oath and penalty of perjury, that the amount was claimed on the 1998 return. Perhaps have that statement attached to a redacted copy of the tax return showing only the line in question where the amount was claimed. Have the stipulation recognize that making a false statement about a tax return is fraud. If the participant is willing to do all that, I'd be inclined to go recommend to the Plan Sponsor to go along with it.

Maybe I'm just feeling a bit obtuse this morning, but all I was saying was that it could be amended, not what the impact of the amendment might be. If your question is: Can a plan that would otherwise have to use age 65 as the testing age for non-discrimination purposes be allowed to use age 60 by making an amendment after the end of the plan year to change one of the plans' NRA from 65 to 60? Then the answer is no, as you suspected. At least, IMO.

Interesting. At one level, I agree with the participant. At another level, I don't. The TPA's job is to recommend that the Plan Sponsor do things such that the Plan Sponsor does not incur liability with the action taken. For this purpose, losing the plan's qualified status would qualify as liability. Would not reporting a loan properly result in the plan losing its qualified status? If so, and if the TPA believes that there was no 1099 issued and, at the same time, the participant didn't report the income, then the TPA should stick to its guns and recommend to the Plan Sponsor that the loan be treated properly. Now, I'm not saying that the 2007 1099 is the way to go. Maybe it requires EPCRS. But I'll leave that to others. There are a couple of ways that the above might be short-circuited. First, the participant could volunteer to present a tax return showing the income claimed. Certainly, the plan can't force the participant to present such a tax return. But without it, in the absence of other proof, the Plan Sponsor may take an action the participant is not fond of (like issuing a recent 1099). Second, the Plan Sponsor might be comfortable having the participant execute a hold harmless agreement. This would expose the participant to significant liability and is unlikely to be something the participant wants to do (and may not be something the Plan Sponsor is comfortable with in the first place). But, if the Plan Sponsor *IS* comfortable with this and so is the participant, I can see this as a reasonable compromise. Let us know what happens.