BenefitJack

No need for an HRA - simply have individuals allocate monies to their Health Flexible Spending Account (for current year expenses - limited FSA) and their Health Savings Account (for everything else, especially as a form of saving for post-retiremnt medical costs - Medicare Part B and D premiums, long term care insurance premiums and out of pocket medical, dental, vision, LTC costs). So, I believe you can have a cafeteria plan with all the regular qualifying benefits (as outlined by Brian) where people can allocate their credits: ▪ Group Health Plan (Medical, Dental, Vision) ▪ Health FSA, Dependent Care FSA ▪ HSA ▪ Group Term Life ($50k coverage cap) ▪ AD&D ▪ Hospital Indemnity/Cancer Insurance ▪ Disability (generally contributions or benefits are taxable) ▪ 401(k) Plan (cashable flex credits, uncommon) ▪ Adoption Assistance (no FICA exemption, uncommon) ▪ PTO Buying/Selling (uncommon)plus Health Savings Accounts) I am a believer in Health Savings Account capable health options, so, I often recommended migrating to "full replacement", multiple HSA-capable strategies. I wouldn't have those credits leak to the 401k nor to cash. I would be circumspect about pre-tax contributions for hospital indemnity and cancer coverage, and certain wellness incentives - See IRS Chief Counsel Memorandums 201622031, 201719025 and 201703013. https://www.irs.gov/pub/irs-wd/201622031.pdf http://hr.cch.com/PayNetNews/CCA201719025.pdf https://www.irs.gov/pub/irs-wd/201703013.pdf I would also avoid adoption assistance, PTO buying and selling as well. If you want to have people sell PTO, the better option is to change the PTO schedule to reduce it to the minimum you want individuals to use each year, then, raise salary accordingly (because they will be working more hours), then whenever they want to use more, simply have them take an up to two week unpaid leave of absence - as scheduling permits and the immediate supervisor approves. A major challenge is that many firms do not effectively track usage. Structured in this way, it will be the supervisor's own budget that takes the hit for failure to recording absence. We also ERISA-fied our PTO program, so that we didn't cash out unused vacation for individuals who separated within the first five years of employment. Doing it that way ensured that the only way to avoid the extra hit on departmental budgets was to report actual usage. In terms of LTD, you might consider an annual enrollment process that offers a choice of taxable benefits and tax-free benefits. Where the individual pays the cost of LTD coverage with after-tax dollars, there is guidance that may enable the benefits to be paid out tax free - should they meet the definition of disabled. Otherwise, where the employer contribution and/or employee pre-tax contributions are used, the disability income is taxable income. Where the employee elects to pay the full cost with after-tax contributions, the individual could allocate the credits to other eligible benefits under the cafeteria plan. One option we also used was a taxable "benefit credit". It would be recorded as a separate form of salary every payday. It would be outside the cafeteria plan. The added wages simply defrayed the cost of benefits not eligible under the cafeteria plan. We sometimes used this "benefit credit" functionality, a separate per payday amount of taxable income, recorded separately from regular salary and/or hourly wage for other purposes. Sometimes we tied benefit credit awards to profitability, sometimes not. Sometimes we used it as a transition strategy with repswct to benefits integration after an acquisition. WE did that a number of times when we acquired a firm that was spending much more on health coverage than we were. Anyways, all it did was effectively raise wages and defray the impact of deferrals to the 401(k),or other taxable benefits (group term life > $50,000, etc.)_ With respect to Educational Assistance (IRC 127), we limited those employer-paid benefits to "job related" expenses, for personal development only (approved by the supervisor, related to the current or next most likely position with the employer). And, where an individual left within a year of separation, we recouped those amounts (I know at least one firm that, at one time, delayed reimbursement until a year after course completion). While recent legislation allows you to consider student loan debt payments as a qualifying expense through 2025, there are some innovative design options there as well for individuals who took classes that would qualify under your IRC 127 plan, but who have already repaid their student loans or those who never took on student debt - that is, if you want to do equity. With respect to IRC 132 transportation fringe benefits, it is a great benefit - however, given the diversity of commuting situations, access using pre-tax contributions may be all you need. Again, this is another potential equity challenge - such as where the cost of parking far exceeds the cost of public transportation, etc. Lots of other permutations and opportunities here. Jack

Perhaps things have changed, but every payroll system I have worked with had a set of decisions for every deduction and income element - if only to get the various determinations correct - include in box 1, definition of covered compensation, ADP wage for testing (which may differ from covered comp). There always was a hierarchy. Very high on the list are cafeteria plan pre-tax deferrals which are pre tax for fica and fica-med. 401k pretax comes before federal and most state withholding, but not fica and fica-med, nor, oftentimes local income tax withholding. Roth would generally come after federal and state income tax withholding. FYI. There is no mention regarding “supplemental withholding” in IRS publication 15 (2021).

Perhaps things have changed, but every payroll system I have worked with had a set of decisions for every deduction and income element - if only to get the various determinations correct - include in box 1, definition of covered compensation, ADP wage for testing (which may differ from covered comp). There always was a hierarchy. Very high on the list are cafeteria plan pre-tax deferrals which are pre tax for fica and fica-med. 401k pretax comes before federal and most state withholding, but not fica and fica-med, nor, oftentimes local income tax withholding. Roth would generally come after federal and state income tax withholding.

What does the plan document say? How does the plan document define covered compensation for deferrals? How does the plan document define covered compensation for employer contributions? We tended to write plan provisions so as to exclude compensation paid post separation. Sometimes, we wrote plan provisions to exclude certain elements of compensation as well - and tested the definition under IRC 414(s). See: 26 CFR § 1.414(s)-1 - Definition of compensation.

You will probably want to run this through the cafeteria plan so that you don't end up with a constructive receipt issue. And, generally speaking, remember that cafeteria plans also have non-discrimination rules - including a benefits test that generally requires you to provide the same benefits to highly paid and not so highly paid. So, this is probably an option you will want to make available to all employees. As a result, you may want to wait to add this to your cafeteria plan until the beginning of the next plan year when all employees are making coverage decisions.

I haven’t looked at it from a tax perspective, but, seems to me that the better option would be to set up the same amount to everyone as a set of credits, as a dollar amount per capita, or a percent of pay. Perhaps they can be “funded” by a traditional profit sharing award - tied to corporate, or team and/or individual performance. Then, to the extent the individual dies not allocate them through the cafeteria plan to items eligible for tax preferred treatment, or to a 401k, they would be paid as wages - leaving choice and control up to the individual. I don’t have them at hand, but I know there are behavioral economics studies showing improved engagement where individuals have choice and control - where outside of tax preferences, that is maximized as cash. most importantly, I don’t want to be in the position as an employer, of making decisions on what qualifies. By the way, I feel the same about taxable reimbursements of student debt - aren’t those folks already earning wages that reflect their skills, performance? I don’t support any such items - but, if I had to, I would favor reimbursement to cover debts for those who did not graduate.

I have incorporated in plan documents, spd's perennial elections in various cafeteria and welfare benefit plans, life insurance, medical, dental, vision, LTD and yes, health and dependent day care flexible spending accounts. Health FSA elections are always, except in short year situations, annual, cafeteria plan elections that "fund", generally on a notational basis, a self-insured health care plan. That's how coverage is determined - based on that annual election. Note that proposed treasury regulation §1.125-2 – Elections in cafeteria plans specifically provides: "... Making, revoking and changing elections. Generally, a cafeteria plan must require employees to elect annually between taxable benefits and qualified benefits. ..." Most employers deploy passive annual enrollment for all but the Health FSA election. That is, your election at hire, or during an annual election period is, per the plan provisions, allowed to remain in effect until you make a change. That is, for example, if you have opted out of health coverage, most plan documents don't provide for a default to enroll you for coverage for the next plan year. Similarly, if you elected the single tier of medical coverage, most plans don't provide for a default to include your spouse in coverage for the subsequent year. In my plans, where individuals waived health FSA coverage, I don't enroll them unless they make an election. Similarly, in years where my plans used evergreen elections, if you enrolled in health FSA coverage, I didn't drop your coverage. At hire, I always positioned the election as an "annual" election, regardless of the month in which you were hired. So, elections individuals made remain in effect, until the time where the plan is amended to require a full positive, affirmative enrollment or a participant elects a change. It depends on the plan documents, SPD's, SBC's, etc. and plan administration/operation. In terms of your plan documents, and contribution structures, I believe the spousal surcharge applies where a participant elects coverage and to pay the surcharge where the spouse has access to coverage where he/she works, and that, despite that, the individual has decided to enroll the spouse. We typically treat that as the equivalent of a "tier" election, so, an evergreen / perennial election, until further notice, seems permissible if your plan document and other required disclosures so provide. Same when it comes to the tobacco surcharge, it too is a function of your plan provisions. Slightly different, of course, is that (similar to a change in status), a change from smoker to non-smoker contribution rates or vice versa, should prompt a concurrent change in the surcharge (generally because the total premium rate varies for smokers and non-smokers while the employer contribution is the same). The tobacco surcharge could be part of the cafeteria plan (pre-tax) or not (after-tax). Always review plan documents and other required disclosures with counsel.

Financial statement impact, non-discrimination test requirements, notice/disclosure? All of these and more are considerations. Problems?

Thanks for asking this. What did the mid-size employer do with respect to retired executives and reimbursing health insurance premium prior to IRS Notice 2018-88? Wouldn't it have been a self-insured health care plan subject to IRC 105(h) non-discrimination rules? Or did they just impute as taxable compensation the premium reimbursement? And, assuming it is an ICHRA, such a plan is a self-funded health plan. Check IRS Notice 2018-88 that says an ICHRA that only reimburses insurance premiums and not medical expenses is not subject to IRC 105(h) - even if it includes Highly Compensated Individuals. The notice includes Example 3 (Individual Coverage HRA is not Subject to Section 105 (h)) – Only Reimburses Premiums). "... Facts: In 2020, Employer C offers all full-time employees, including HCIs, an individual coverage HRA that only reimburses premiums for individual health insurance coverage. Conclusion: The individual coverage HRA would not be a covered HRA because it would only reimburse premiums for individual health insurance coverage. Therefore, it would not be subject to the nondiscrimination requirements in section 105(h) and the regulations thereunder. ..." However, while different classes are permitted in an ICHRA, not sure where it says an ICHRA can discriminate in favor of highly compensated individuals if the benefit is limited to the reimbursement of insurance. See Treasury Regulation 1.105-11(c)(3)(iii) that discrimination rules would apply "... to a retired employee who was a highly compensated individual unless the type, and the dollar limitations, of benefits provided retired employees who were highly compensated individuals are the same for all other retired participants." Am I missing something? Is there other guidance out there?

What does the plan document provide? Most plan documents that provide for loans do not restrict the loan based on creditworthiness of the participant, nor based on the purpose for the loan. I don't know of any plan provisions that check creditworthiness by say obtaining a FICO score - such an activity would be required for any participant who requests a loan, resulting in added cost, and a delay. However, one option a plan sponsor may want to consider is reporting the loan to the credit bureaus - as a means of helping workers establish/improve credit. Almost all plans that provide for loans incorporate a minimum loan amount. Otherwise, plan provisions generally track regulatory/code repayment requirements. That is, most plan loans are approved regardless of the reason for the loan (good reason, bad reason, no reason whatsoever). Based on the above comments, unless the plan is amended to provide for a credit check, the plan provisions may not provide the plan administrator sufficient discretion to reject the loan application. With respect to stopping payroll deduction repayment, most state payroll statutes and regulations require the worker to authorize every deduction, or, withhold their authorization. So, the worker can almost always stop deductions (regardless of the reason) at their discretion. A different result is obtained where a worker makes an annual election (only altered by a change in status, and only where the plan so provides) under a cafeteria plan. Personal (and other) loans are permitted after individuals have declared bankruptcy – expect higher interest rates and less access to credit, of course. Where loan principal is pooled (say as part of a fixed income investment), all who have assets allocated to that investment may benefit (lose) as a result of the participant loan portfolio. That is, the interest rate charged for the loan may exceed the return on other fixed income investments, but, the risk of loss is certainly different.

" ... failure to correct an administrative error in a qualified retirement plan could result in taxation of all future (otherwise deferred) benefits as well as a loss of exemption for trust earnings.... Cafeteria plans, on the other hand, by their very nature restart each year i.e., an administrative error should not affect prospective exclusions once correction is made. ..." Does anyone have a cite for this restarting notion? Cafeteria plan elections can include a choice between tax preferred health coverage and cash, or upon enrolling in health coverage, an election to make the contribution with pre-tax dollars or after-tax dollars. However, cafeteria plan elections can be evergreen - remaining in place until the participant elects a change. Regulations were proposed 12 years ago and have yet to be finalized. Almost all administrative errors result from failure to timely process a change in coverage - enrollment, separation, etc. Where the administrator failed to enroll someone in coverage and failed to take the contribution, (if permitted by the insurer or the plan document where self insured) the administrator may be able to go back and enroll the individual in coverage as elected. Where the administrator failed to remove someone from coverage, (where permitted by the insurance contract and/or the plan document), they can go back and correct the action and refund the contributions made in error. Because these elections (to start or stop coverage) typically impact take home pay, more often than not, the mistake is caught fairly quickly. The proposed regulations state, in part: "... The new proposed regulations require that a cafeteria plan offer employees an election among only permitted taxable benefits (including cash) and qualified nontaxable benefits. See section 125(d)(1)(B). ... In general, in order for a benefit to be a qualified benefit for purposes of section 125, the benefit must be excludible from employees’ gross income under a specific provision of the Code and must not defer compensation ... Qualified benefits must be current benefits. In general, a cafeteria plan may not offer benefits that defer compensation or operate to defer compensation. Section 125(d)(2)(A). In general, benefits may not be carried over to a later plan year or used in one plan year to purchase benefits to be provided in a later plan year. ... " There is much more detail. However, it should be noted that If the cafeteria plan fails to operate according to its written plan or otherwise fails to operate in compliance with section 125 and the regulations, the plan is not a cafeteria plan and employees’ elections between taxable and nontaxable benefits result in gross income to the employees. Proposed Treasury Regulation 1.125-1(c)(7) includes the following as failures: (A) Paying or reimbursing expenses for qualified benefits incurred before the later of the adoption date or effective date of the cafeteria plan, before the beginning of a period of coverage or before the later of the date of adoption or effective date of a plan amendment adding a new benefit; (B) Offering benefits other than permitted taxable benefits and qualified benefits; (C) Operating to defer compensation (except as permitted in paragraph (o) of this section); (D) Failing to comply with the uniform coverage rule in paragraph (d) in §1.125-5; (E) Failing to comply with the use-or-lose rule in paragraph (c) in §1.125-5; (F) Allowing employees to revoke elections or make new elections, except as provided in §1.125-4 and paragraph (a) in §1.125-2; (G) Failing to comply with the substantiation requirements of §1.125-6; (H) Paying or reimbursing expenses in an FSA other than expenses expressly permitted in paragraph (h) in §1.125-5; (I) Allocating experience gains other than as expressly permitted in paragraph (o) in §1.125-5; (J) Failing to comply with the grace period rules in paragraph (e) of this section; or (K) Failing to comply with the qualified HSA distribution rules in paragraph (n) in §1.125-5.

The DB plan could adopt loan provisions and loan the participant money - similar to but different than a loan from a 401k plan. No plan I am familiar with does that, it I believe a few do offer loans. Feel free to connect with me on LinkedIn if you want to approach the plan sponsor with a proposal.

Here it is, once and for all. I will save this response and use it the next time the issue arises. It is much the same answer I have provided every time I have been asked, over the past 30+ years. All monies in an individual account retirement savings plan are tracked at least two ways – based on the source and based on the investment. A plan loan is an investment in yourself. A plan loan does not change the tax status of the principal. However, a plan loan does change the investment – those monies may have been invested in equities, fixed income investments, etc., but it becomes a fixed-income investment in yourself. There are loans structures out there where the loan is treated as another security within a fund (a bond fund, a money market fund, etc.) That is, the loan transaction is a transfer to a specific plan investment, and then monies are borrowed from that investment and the loan note is just another investment in that fund. You might see something like this in a 403(b) plan (where the loan may be made by the insurance company) or in a defined benefit pension plan. In those situations, the loan interest you pay is treated the same interest paid on other securities held in the fund. However, in a 401(k) plan, almost always, the interest you pay is credited to your own account. The source and tax status of the loan principal doesn’t change – so if the money was contributed as pre-tax 401(k) contributions, Roth 401(k) contributions, after-tax 401(a) contributions or employer 401(a) contributions, when the principal is distributed to you as a loan, there is no tax effect and when the principal is repaid to your account, there is no tax effect. The money comes out and goes back in credited to the same source bucket. The investment allocation is typically not the same when reinvested. All loan interest, whether paid on a commercial loan or on a plan loan is always paid with after-tax dollars. The remaining questions are: • Is there a tax deduction on the interest paid, and • Is the interest taxable when received. There is a tax deduction on the interest you pay where the loan is secured with a qualifying mortgage and otherwise meets tax code requirements – whether the loan was sourced from a tax qualified plan or a commercial source. The interest received is taxable on the same basis as would apply to interest on any other fixed income investment in the plan. So, whether the interest is paid based on an investment in bonds or paid by you on a loan, it is taxable income, with one exception. The exception is if the principal is Roth 401(k) contributions where the Roth monies remain in the plan to meet the 5 year age 59 ½ requirements. The interest will be credited as Roth 401(k) interest. And, if the participant meets the 5 year / age 59 1/2 requirement, it will come out of the plan ax free - the same as it would if it were interest on a bond investment. So, yes, you can pay interest on your plan and take a tax deduction where the interest you ultimately receive is not taxable income. Finally, yes, you did pay interest with after tax dollars that did not qualify for a tax deduction (except where properly secured with a mortgage) and yes, you did have to pay taxes on interest you received from the plan (unless it is Roth 401(k) interest that qualifies for tax free treatment). However, if you had borrowed from a commercial source, you would not receive the interest paid on the loan. That is, except for the exceptions detailed immediately above, there is no option to make loan interest payments with pre-tax contributions, and there is no option to receive interest from the plan tax free. Simply, these are two different amounts.

Take a look at your enrollment/election forms. Are AFLAC premium payments made through pre-tax contributions through an IRC 125 cafeteria plan? If so, what does that plan document provide? Is AFLAC treated as a health care plan under IRC 105 (such as if there was an employer contribution)? If so, what does the SPD/Plan Document provide in terms of elections? Or, is AFLAC a voluntary benefit where premiums are paid by employees with after-tax dollars, outside of the cafeteria plan. That is, with respect to those who enrolled in prior years, did they enroll for a single year or was their enrollment/election indefinite until they make a change? If it is the former, they need to consider whether or not they want to enroll for the next year. If it is the latter, best practices would suggest that you should be sure to offer them the option to make a change and keep a record that they were solicited at annual enrollment. Either enrollment method, enrolling for a single plan year, or an indefinite election is permissible. What did you choose and do you now want to make a change? However, regardless of the method you choose, you should certainly approach every employee no less frequently than once a year to reconfirm access, and the ability to make a change.

My plan has allowed plan loans, regardless of employment status (using 21st Century, electronic banking, since 1986. A loan can be initiated by any participant, including separated, on leave, retired, etc. - regardless of age or payout status.

Couple of comments: Can you take a loan from your 401(k)? That would be more tax efficient than a hardship withdrawal. Assuming you are currently participating in a HSA-capable health option, don't forget the annual maximum contribution limits, which are, in 2019: $3,500 (single) $7,000 (non-single) Hopefully, you opened (or your employer opened your HSA account in a prior year or at least this year prior to incurring those out-of-pocket expenses. If not, if you haven't opened up an HSA account, those expenses may not qualify for reimbursement. If so, don't forget that while your contributions may be limited for the remainder of 2019, if the expense was incurred after you opened up your HSA account, you can claim those expenses whenever there is money in the HSA account. That is, kind of like the long ago ZEBRA account, you can defer more money into the HSA if you are eligible to make a HSA contribution in a future year, and use it to reimburse the expense you incurred in prior years, where the expense was incurred after opening up the HSA account but before putting enough money in to claim the reimbursement. Another reason for taking a loan is that it will offer you flexibility to prospectively increase your HSA contribution for the remainder of 2019 through your employer's cafeteria plan. That may allow you to avoid not only Federal and State income taxes, but also FICA and FICA-Med. HSA contributions can typically be prospectively increased in any future month. And, depending on the level and nature of your employer's financial support, it may qualify you for an employer contribution.

If the employer doesn’t want to administer loan repayments AND contributions at the same time, do loan repayments through ACH/electronic banking. Not sure why they would limit loan access to hardship reasons, unless they don’t offer hardship withdrawals today, or if they expect to eliminate hardship withdrawals in 2019 due to the coming changes that are part of the recent Budget Act.

The regulations permit periodic re-enrollment. So, you can treat the 90th day as the trigger for a re-enrollment, deploying automatic enrollment. For example, since 2007, my plan has annually re-enrolled individuals who failed to enroll, or opted out of enrollment. We follow all of the required disclosures. The default percentage of pay was initially 3%, then 4%, then 5% and ultimately 6%. So, someone who opted out at the time of hire, was automatically enrolled at 3% in 2007, and if they opted out, was automatically enrolled at 3% in 2008, and if they opted out, was automatically enrolled at 4% in 2009, and if they opted out, was automatically enrolled at 5% in 2010, and if they opted out, was automatically enrolled at 6% in 2011. When people complained, "how many times do I have to tell you I do not want to participate in this plan", the answer was always the same "just once a year". This enrollment process is comparable to an "affirmative enrollment" in welfare benefit plans every year.

Certainly, yes, part of total rewards. But, last I heard, all of the service providers talk about these plans as programs put in place to prepare for income replacement for periods after employment ends. Both the DOL and IRS have confirmed that you can vary the fees assessed against participants who are no longer employed - if you want to. In fact, the majority of plan loans are repaid. And, in fact, the majority of plan loans that default (where assets are not used for retirement) occurs because the plan does not accommodate electronic banking repayment processes - that are prevalent everywhere else in today's economy. I could see resistance if the plan sponsor would be paying greater fees. But, given the lower cost of repayment via ACH (compared to payday processing), and given the IRS/DOL guidance, the only reason why electronic repayment is not more prevalent seems to be because service providers aren't enthusiastic about plan assets that are not generating fees as assets under management. There is an opportunity here for the service provider willing and interested in providing greater value - particularly in terms of retaining assets and the associated fees for terminated vested participants. Remember, the median tenure of American workers is 5 - 6 years. So, each American will have 6, 7, 8, 9, 10 or more employers. Lots of opportunity for asset aggregation/consolidation for those who will cater to participant needs.

I would bet that you pay at least one bill each month electronically - if only because it is less expensive (new checks, fees, postage, etc.) Simply, service providers do participants a disservice when they fail to utilize 21st Century banking functionality on behalf of their 401(k) participants and their loans. I mean, who is the plan designed to benefit, anyway? Consider this. Let's say you have a worker who saves for 5 years, from age 25 to age 30. She is living payday to payday - but for the contribution to a 401(k) plan. She has an emergency, her car fails, and she has to buy a used car. She is not credit worthy. So, she has three choices - max out her credit cards (at 29.99% interest - something she can't afford), take a series of payday loans (at nearly 400% interest - can't afford that either) or take a plan loan (repay in 2 years @ 5%). She borrows from the plan, reallocates her investments (so that the plan loan becomes her fixed income investment and she has the same investment allocation to equities) and changes her living style - squeezing the loan payment into her budget - without having to reduce her 401(k) contributions and give up the match. Should she lose her job, you would deny her the right to continue repaying the loan - forcing leakage? Scenario #2: Let's say she loses her job, gets a new job that requires a significant commute at an employer that does not offer a 401(k). So, she has to buy a better car. You would deny her the option to borrow the money - forcing a distribution? I thought we put these plans in place for the participants. I thought the 401(k) was a separate legal entity. People don't stop their status as participants because their employment ends. Long past time for service providers to come into the 21st Century. See: 2nd quarter 2017 Benefits Quarterly: Qualified Plan Loans: Evil or Essential?

Sorry about the length of this response. Outstanding loan principal is certainly part of plan assets. I would amend the plan and the provisions regarding loans, to explicitly authorize the plan administrator to limit/adjust loans where necessary to otherwise comply with the code/regulations. Many plans have such provisions regarding deferrals - to meet non-discrimination testing without triggering distributions. Similarly, the plan sponsor may want to curtail in-service distributions/withdrawals while a loan is outstanding. Note that the rule for RMD's for a 401(k) is not the same as for an IRA - in an IRA, you calculate the RMD separately for each IRA, but you can aggregate the total and take the entire distribution from a single IRA. In the 401(k) space, you must calculate and satisfy your RMDs separately for each plan and withdraw that amount from that plan. So, there is no opportunity for the taxpayer to aggregate her 401(k) plans to satisfy RMD. The exception to that rule is in 403(b) tax-sheltered annuities, where you can calculate the RMDs for each plan and then take the total from any one (or more) of the tax-sheltered annuities. Assuming the plan accepts IRA rollovers, and assuming the plan permits loan repayment acceleration (I would amend the plan accordingly if it did not so permit), the plan administrator would reach out to the participant and ask her to provide the appropriate amount (either in the form of an accelerated loan repayment or in the form of an IRA rollover), which the plan administrator will then turn right around and payout to meet RMD requirements. Assuming the individual just turned age 70 1/2 and the 1st RMD was due to be paid by April 1st 2017, I think you have a problem. The only saving issue here is that if it was the first RMD payable by April 1, 2017, we are talking about ~$1,679, where the $1,000 cash equivalent investment is just slightly short, and the 50% penalty would be ~$340. However, if the next RMD is not due until December, I agree with the prior commentary that loan payments (no less frequently than quarterly, level amortization) should be adequate to meet RMD requirements for 2017. A $45,000 loan principal @ ~5%, repayments to be amortized over 20 quarters (5 years), means a quarterly repayment of $2,500+ ($10,000+ a year). Assuming the plan document provides the plan administrator the authority to adjust existing loans, I would add a plan provision that all loans are subject to recharacterization into a distribution and a new, lower amount of outstanding loan principal to the extent necessary to comply with RMD requirements (or any other code/regulatory requirement). No cash is distributed, the recharacterization results in reporting a taxable payout (similar to a loan default at separation). That said, I think it would be rare to see a situation where an individual had a vested account balance of say $100,000+, who took a loan of $50,000, then soon thereafter, ended up with an account balance of only $46,000, where only $1,000 is in cash equivalent investments and $45,000 is the outstanding loan amount. Perhaps you can get there if the plan allows withdrawals while a loan is outstanding, but, if it does, why wouldn't those withdrawals qualify to meet the requirements for RMD?