RatherBeGolfing

We are still working it out. Depending on the client, some are doing deferral plus vested balance in other sources, some are deferral only, some declined to offer CRDs completely.

I have spent way to much time on JHs CRD form and its issues. The dumbest part is that you only option is to specify dollar amount to withdraw from each source. There is no way to say 100% of available funds from a source. When the form first came out, you could elect 100% of deferrals, but had to specify exact dollar amount form other sources. After we complained, they removed the 100% for deferrals rather than add 100% for other sources. With the market going up and down, you have to guesstimate what the available balance will be for the next day in order to process. If its partially vested source, you have to give yourself enough of a cushion, or JH will distribute non-vested funds. When we brought it up again, JH recommended that we use 85-90% as the dollar value in order to make sure that there is enough assets to process the distribution. Whoever designed and re-designed that form should be tarred and feathered. / end rant.

Whether that will be possible in operation will depend on more than the trustee or plan admin though. If the client is with a major platform recordkeeper like JH, American Funds, Ascensus, etc, the recordkeeper will make that decision.

Agree with @Bird. If you had an loan provision and you decided to change to add a fee or change a fee, I'd lean more towards do the 30 days even if not practical. In this case, loans are available for 180 days and people need cash now. I would add it as of today no hesitation.

Kids and dogs make for an interesting work from home experinece as well...

Ft Williams just released optional language to their loan documents, and they are limiting suspension to payments due before December 31, 2020, noting that further guidance is needed from IRS/DOL. I ave not seen anything from other document providers yet.

Peter, I'm not comfortable advising my clients to do this either. At least not without some sort of guidance from the IRS. While it is the participants responsibility to pay taxes, it is the plans responsibility to withhold taxes. The proposed tax treatment is essentially asking a non adopting plan to somehow adopt just the tax portion of 2202(a). Let's look at it from a different angle. Do you agree that if you cannot amend for the tax treatment alone, this could create a plan defect? Further, if you cannot amend for tax treatment alone, could the trustee or plan admin be seen as making determination as to the participants eligibility for tax treatment under CARES?

Good catch. I bet that is it because I have seen both CCH and WK documents referring to 1/1

You are correct

I'm with you this far. Where I go a different way is at the 4/30/21 payment. I would re-amortize the remainder of the original balance plus accrued interest over the remaining original loan term plus the 9 month suspension period. Only 2 different payment amounts unless you count $0 as a payment amount.

That is how I interpret it. My understanding is that this is also how most of the policy folks at the recordkeepers are interpreting it. The safe harbor under 2005-92 2005-98 uses remaining period of the loan, plus suspension period. Absent IRS guidance on CARES, I think that is the logical interpretation considering previous guidance in 2005-98. 2005-92 2005-98 says that loan payments must resume at the end of the suspension period. If we apply that to CARES, regular loan payments must resume in January of 2021. The suspended payments won't be due until after the one year delay (Most likely no earlier than April), but the maximum period you are disregarding from the 5 year term is 9 months (Apr-Dec). It doesn't make sense to add 12 months to the term when you had 9 months of non-payment. A more extreme example would be taking a loan in December, start paying in January, re-amortizing in December, and get a full 6 year term to pay it off. I think it comes down to what @Bird mentioned above. If the IRS comes out with CARES guidance that says that since the suspension period is less than 12 months, you get to delay all payments up to March 26, 2021, then I agree you would add 12 months to the end of the original term. The guidance would need to be inconsistent with 2005-92 2005-98 in order to make it work. Im not so sure they will focus on suspending all payments for 12 months rather than suspending all payments on or before December 31 though. Either way I think it will be a hard stop at December 31 or March 26. So the only way you get a full 12 months added on is if you had an existing loan at enactment.

There is a lot of confusion regarding this part, I don't think anyone is intentionally misleading sponsors and participants. We will hopefully get IRS guidance soon, but Notice 2005-92 2005-98 does give us some insight. The one year delay and the suspension period are actually two separate things. - The suspension period is March 27, 2020 through December 31,2020 - the one year is how long you get to suspend payments that occur during the suspension period. So if the first payment you suspend is your April 15 payment, all payments through December 31 are suspended for one year. You resume your regular payments after the suspension period is over (January 2021) and you have to start paying on your delayed payments after the one year delay. The safe harbor in Notice 2005-92 2005-98 was to delay payments during the suspension period, and then re-amortize over the remainder of the loan plus the suspension period. The suspension period used in notice 2005-92 2005-98 (from KETRA) was actually longer than the one year delay. Today we have the opposite in CARES, where the suspension period is shorter than the one year delay.

@Larry Starr Having just re-read Notice 2005-92 it actually goes a step further and specifically says that deemed distributions are not permitted to be treated as a Katrina distribution.

Agreed. I think there may be a workaround that would allow for more participants to benefit from the relief though. Lets say that you haven't made your semimonthly payments at all for 2020, so you are 5 payments behind with no ability to make those payments up at the moment. Rev Proc 2019-19 allows for self-correction of certain loan failures by a single lump sum payment, re-amortization, or a combination of the two. If the missed loan payments are corrected by re-amortizing, and the first payment falls in the suspension period, we have effectively managed to delay payments scheduled before the suspension period. Do you agree?

What source from WK/CCH are you referring to? I am looking at a WK summary right now that states "provided the distribution is made on or after January 1, 2020 and before December 31, 2020"

If all the other qualifications are met, it is a CRD. Not sure why you would interpret it as March 27 and forward when the Act says "on or after January 1, 2020, and before December 31, 2020"

My favorite was a recent advisor who had purchased one of these leads with "red flag conversation starters". He contacted a client and told them they were out of 404(c) compliance and were facing fiduciary liability because the plan had not designated any QDIAs. For a vanilla profit sharing plan.

For that specific payment, yes. Probably. Such a policy is usually there because a participant no longer has payroll to withhold from. If the plan's loan policy is require payment within 2 weeks of termination, that could be considered the due date. Payment hasn't been missed yet, so its not a cure payment. I would assume participant would have a choice.

For your spreadsheet, are you allowing a full years delay of each payment before it is re-amortized, or are you re-amortizing the entire delayed amount when the first delayed payment reaches a year?

The 1099 for loan offset is the same as any other distribution. The 1099 for a deemed distribution without an offset uses code L in addition to 1,2, or 7. That signals that it is not rollover eligible. So, if my interpretation is correct, I believe the 1099 would prevent the employee from treating it as a CRD for tax purposes.

Agreed. The employee would only need to certify that he/she is a qualified individual for the purpose of a CRD as a distributable event. Other than that, it would be handled on the employees tax return.

100% agree new loan or old loan doesn't matter. I'm saying the payment you want to delay has to have a due date that occurs during the suspension period (3/27/20-12/31/20). If you are on year three of a loan and you didnt make your 2/28/20 payment, I'm not sure I see that the language supports delaying that payment. Is the due date of a loan payment its scheduled payment date or the cure date?

I think it comes down to whether a deemed distribution is in fact a distribution, or just a taxable event. An offset is clearly a distribution, one that could even be rolled over, so that is a CRD if all other requirements are met. EDIT: Im going to send this one to Derrin to see if he can include it it on his "Fireside chat" webcast next week...

Agreed Agreed Agreed My reading of 2202(b)(2)(A) is that the due date of the payment (per the amortization schedule) would need to fall during the suspension period. I wouldn't count the cure period as a "due date" that could be extended. It can probably be argued the other way as well, but that is how Im looking at it for now.

Luke, The same language in KETRA has been interpreted as optional due to language in Notice 2005-92. Notice 2005-92 also included a safe harbor method for delayed repayments katrina_act_text.pdf not200592.113005.end.pdf