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Found 20 results

  1. I think this is correct, but as a sanity check since it seems harder than expect to find authority on this - if a 401(k) plan is frozen, it's still permissible for participants to take out new loans and hardship withdrawals, correct?
  2. Husband/wife solo-401(k) plan. They were not using a TPA, have self-directed brokerage accounts, and used a loan recordkeeping system to take out 4 loans back in 2019 - 2 for each of them. As a TPA I have never dealt with this loan recordkeeping system so I don't know the whole story, but it allowed 2 of the loans to be taken with a 1% interest rate. Not Prime + 1% - just a flat 1%. The other two loans had Prime + 1% applied. Their financial advisors wised-up and brought them to your friendly local TPA. There are numerous other issues with these loans that we will help them fix through re-amortizing and consolidating. My questions for the BenefitsLink community: 1. Is there any possible way that a 1% interest rate would be a "reasonable interest rate" for a solo-401(k) loan in the eyes of the IRS? 2. Does anyone know how to shut down these loan recordkeeping systems when their services are no longer needed? They send monthly "invoices" for the repayments (which have been wrong - long story) and they charge a monthly fee that we need to end. I don't want to mention a name because I think they have botched these loans, but again, I don't know both sides of the story.
  3. This should be simple but I am struggling for an answer.. I have a participant that requested the maximum loan available. Did the loan paperwork. He returned paperwork and the market has gone down. Can i process for the amount on paperwork or do can he only have the maximum on the date it is processed? If the later, do I have to redo the paperwork for the new amount? Thank you!
  4. Can the required matching contributions to a 401(k) be paid with proceeds from a PPP loan?
  5. If a wife takes a loan from a 401k plan and passes away before it is paid off, can the husband pay off the loan before the end of the quarter following her passing? Or is it automatically defaulted?
  6. Hi all! We're looking at taking over a plan that is a spinoff from a MEP. The MEP allowed for Loans, but the employer does not intend to include loan provisions in the new plan. Would this be able to be treated like a plan termination offset situation for the few participants who have loans, allowing them to begin rolling funds into an IRA to replace the loan offset? Or is there some anti-cutback rule that I am not thinking of that would require the employer to allow the participants with loans to continue their payroll deductions for loan repayments into their accounts in the plan until all are repaid? Thanks!
  7. Is there a limit (with the exception of the 50,000 and or 1/2 the vested value) that should be followed regarding the number of times a participant can refinance a loan?
  8. Hello everyone, I am so confused and could use some assistance. I had a 401K balance of $58K but have an outstanding loan of 10K so the balance that shows up is now 48K. I've been paying it back and all that. I took it out to pay high interest credit cards. Anyway I have just resigned. Now I know I will have it taxed as income and all that plus a 10% penalty. My question is regarding the balance of the 401K. It is 48K correct? They won't reduce it by another 10K to "repay" the loan will they? It seems like a silly question but I'm not good at this. Thank you.
  9. Small (less than 100) 401(k) plan does not presently allow for loans - but would like to add them, subject to the hardship rules. they would like to restrict salary deferrals while a loan is being repaid. Meaning the participant cannot make deferrals until the loan is repaid in full. The thinking is that if the participant has extra cash available to make deferrals, then they should be using that extra cash towards the loan. i don't see anything on the face that would make this provision a problem - except a possible BRF issue. If loans are available only for hardship purposes, probably NHCE will be the primary users. If so, then the deferral restriction will primarily affect NHCE. HCE that do take a loan would likely have more means to repay it quicker. Am I over thinking this? Thoughts? Should this provision be allowed?
  10. Hi, everyone. I have an issue, and I hope you all can help. It is long and complicated, but I appreciate any clarification to help us get this resolved. In 2014, my husband requested a 401K loan from his company. It was approved, and repayment terms were set. We got the money and payments were held every paycheck until January of this year. During this time, my husband's job title and pay changed often, so we never really paid attention to the changes in pay. After the first of the year, I did notice his loan balance wasn't decreasing, so I attempted to contact his benefits person through email and phone various times with no response. In July, we received an envelope with several letters from MassMutual (who has 401K and loan) stating the checks they sent us were never cashed. I had no checks and no clue what this was about. My husband called and was informed his loan was in default and all checks mailed to them from his company had been returned. Upon further investigation, he previous benefits lady had allowed the loan to default but continued to mail the payments to MassMutual, who then returned every payment back to the employer. This went on for over a year, and we never heard a single thing about it from either party. Between the two, they have "found" about 12 checks (out of approx. 26) and reissued them to us. MM told my husband they knew it wasn't his fault and would work with us to reinstate repayment. This was 2 months ago. Yesterday, I received a letter stating the loan was basically refinanced, and for a lovely payment of $900 a month for 2 years, it would be paid. It also said we could default, get a 1099-R and basically call it done. First, $900 is ridiculous and absolutely not a possibility. Second, I distinctly remember getting a 1099-R and paying taxes on the loan amount back in 2014. I verified this with my records, and we paid taxes on the full amount on 2014 taxes. I know we hold some responsibility. I know he was young and dumb to do this to begin with. However, I need HELP!!!! If it was in fact a loan, should we have even gotten the 1099-R? Since we did, can we change it to a early withdrawal and get what money was paid back to the "loan" refunded? Do I need to contact a lawyer, and if so, what specialty?
  11. There is a participant who took out two loans. Loan 1 was paid off in the spring of this year. The loan payments were never stopped, and thus applied to the second loan. The participant recently noticed and would like the months of extra payments returned. Would this fall under one of the acceptable categories to take money out of the plan and return to the participant?
  12. Would a plan that does not otherwise allow loans be able to accept loan rollovers in connection with an acquisition (assuming the accepting plan's rollover language does not prohibit a rollover in the form of a loan and assuming that all those with rolled over loans are non-highly compensated)? On the one hand, it seems that allowing a loan rollover is distinct from allowing the issuance of an original loan under the plan. But I am wondering if it runs afoul of the prohibited transaction exemption for loans, which requires that loans be made available to all participants on a reasonably equivalent basis. Is anyone aware of any authority or guidance on this issue or have any experience or thoughts on it?
  13. A plan's loan policy had a limit of 5 years for participant loans. The vendor issued a loan a couple weeks ago for a 15-year primary residence loan. The plan sponsor does not want to adopt a new loan policy that allows for primary residence loans. The loan is not in default, the end of the cure period hasn't passed. One payment just occurred. Has an actual error occurred that would necessitate VCP? Could this be self-corrected by re-amortizing the loan now to not go outside 5 years or by having the participant pay off the loan now and borrow from outside the plan?
  14. According to the plan provision plan allows one loan at time and does not allow loan refinance. So, if a participant paid a 2nd loan mistakenly, how to correct the error?
  15. We have a PS plan with insurance that pre-dates our involvement. One of the participants dealt directly with the insurance company to take out a loan on the policy in his name and claims that the insurance company says he doesn't need to repay it. I don't understand how he managed to get the loan without the trustees consent, but that is a question for another day. I contend that since it is a plan asset, the loan needs to follow the same rules as any other loan i.e. have a loan agreement with the plan and be repaid in installments over 5 years. The loan is almost 3 years old now and I have been telling the client the whole time that there need to be repayments. I contend that the loan is in default and should be taxable to the participant. Is there any exception to the qualified plan loan rules for insurance????? This is our only PSP with insurance, so maybe there is something I'm missing.
  16. The 401(k) plan permits 3 loans at a time. A participant took a loan previously which was then deemed. If the participant has enough assets to take another loan, can he since the plan permits 3 loans? Does the deemed loan need to be repaid first? Thank you in advance for your advice!!
  17. Participant withdrew $18,000 from individual account in profit sharing plan in November 2012. The participant started making loan repayments in January 2013 however the participant did not sign the loan documents until February 2013. Can this still be considered a loan or is a taxable distribution? If it's a taxable distribution, what do I do about the repayments that have been made to date?
  18. Companies A, B & C form a controlled group. A & B sponsor one 401(k) plan and C sponsors a separate 401(k) plan. Participant Doe worked for C and has a large account balance in C's plan ($45,000). He was recently transferred to Company A and is now contributing to A & B's plan (Account balance = $1,500). Doe has requested a loan from Company C's plan. The plan document only allows for loans to be repaid via payroll deduction (checks are only permitted for prepayment). He is no longer receiving a pay check from Company C. He is only being paid by Company A. Can he take a loan from Company C's plan if he cannot repay it using compensation from Company C? Would he be able to transfer his account balance from Company C's plan to A & B's plan? (He has not incurred a distributable event. He only terminated employment w/ Company C but he's still employed within the controlled group.) Thoughts?
  19. I have a client that allows loans for harships only. One of their employees (an NHCE) is in some financial trouble, but not for any of the hardship reasons (primary residence, medical, funeral etc.) The client would like to help out this employee but does not want to open the floodgates to the other employees, so I have a few questions: 1. What kind of evidence for the hardship is required by IRS/DOL (not by the plan)? Can we take the employee on their word only? 2. Can we amend the plan to allow for loans specifically naming this employee? 3. Can we amend the plan to allow for non-hardship loans for a specific period, say 5/1-5/31? 4. The loan is for a car - can we amend the plan to only allow loans for harship and transportation to and from work? The bottom line is the client wants to help put their employee, but not does want all the other employees to start taking loans for "non-hardship" reasons. Let me know what you think. Thanks
  20. Guest

    Prohibitive Transaction

    Is it a prohibitive transaction for a Grandfather to lend money from his Profit Sharing plan to a company that is owned 25% by his Grandson?
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