RatherBeGolfing

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

I agree. Compound interest is more appropriate, and something that most admin software or spreadsheet will take care of.

No. Any distribution in 2020 is a CRD if made from an eligible plan to a qualified individual, including the RMD you describe. In your example, it is a 2020 distribution from a 401(k) plan, correct? In that case, it is a CRD if the participant is a qualified individual, and can be paid back to any plan or IRA that accepts rollover contributions. If the original plan accepts rollovers, it can go back to that plan. Since it is terminating, it is possible that it will not accept a rollover. Short answer is that RMDs are waived for all plans (except defined benefit plans) for 2020. It is simply not required by law. You do not have to be a qualified individual or be affected by the virus in any way. The longer answer is that some plans may still require a distribution based on the plan document language, even if it is not required by law for 2020. These plans will be the minority though, so chances are that your plan will not require an RMD.

Yes. We are having issues with several recordkeepers processing CRDs. Its understandable since they had to develop procedures on the fly, but it is frustrating...

They sell "401(k) leads" to financial advisors. They collect the data, package it in a report, and sell it as a lead. Im sure they do some sort of review so they can say they provided a service, but their game is selling access to the plan.

I have used 23rd, but... I think it is the 22nd. The 23rd would be day 181

@Dave Baker Including a notification to Dave for this thread. I don't think it is necessarily inappropriate for a participant to come here to ask questions. Many have simple questions and just don't know who to ask or where to turn for information. I agree that it is inappropriate to try to resolve specific participant issues or lay blame on someone through the message boards. We never have all the information, and we only get one side of the problem. To that end, maybe just have Mods lock a specific thread when it gets combative and insulting, rather than not allowing questions from non-industry folks all together?

I believe they are closed down. This is one of the reasons ARA is fighting hard for the automatic extension for all plans, the service center that receives and processes the 5558 is shut down. If you really need to file, I would file it electronically on the SF with limited information as a one participant plan.

Unless I'm missing it @Peter Gulia is actually mixing his apples and oranges in the hypo. If it's a participant directed plan, and Pat takes 100% of his balance as loan, the only thing left in the plan for Pat is his loan receivable of $100,000 plus interest. There is nothing to decrease in value due to market swings. If the loan is a PLAN investment, it is a whole other animal. If you let a participant borrow 100% (let's say $100,000) and participant is laid off/defaults with a market loss that that now values his account at $75,000, the plan has a loss of $25,000 on that investment after participants account balance is used to offset. If loans are plan investments, I would heavily favor CRDs over CRLs in this economy. Let them take their balance out and pay taxes or repay over the next 3 years rather than an iffy plan investment in participants ability to repay the loan.

https://content.govdelivery.com/accounts/USPBGC/bulletins/285ef9c Follow up from PBGC