Loans in Relius

[pmacduff]

Anybody else notice that the vested percentage on the loans in the employee census shows 0%? When I run the summary of account detail that I use, it also shows 0% in the percentage column, but applies the current vested percentage to the loan principal balance. In other words, if the participant is 100% vested, the vested balance is correct; but if the participant is say 40% vested, the software applies the 40% to the loan principal balance and shows that as the vested balance (while still NOT showing vested percentage). I believe this is WRONG! I talked extensively with Tech Support on this issue, but they do not seem concerned. I believe that all loan account balances should show as 100% vested and the vested loan balance should be 100% of the dollar amount. The vesting on the account was already determined when the loan originated. I expressed my dissatisfaction with the response and the software, but was left feeling that they were not concerned! Is anyone with me on this?

[Tom Poje]

loans should be forbidden, but we know that won't happen.

I think I have modified are reports so if fund name = loan, then show vesting at 100%. My mind is turning to jello (but peach flavored, so there is hope yet). I don't quite remember. I know on the certs I simply copied the loan end balance and print on the loan vested balance line. (And then modified the total vested balance)

so, in other words, you are not alone.

I would add that usually the loans come from deferral $ so maybe I don't have the same problem as $ coming from vested balances.

[rcline46]

Quantech / Relius does a 'look through' for loan balances. The concept is when the loan is paid back, and the principal returns to the source from which it came, what should the vesting be?

Simple example - borrow from 40% vested account - you borrow 20% of the account ($100 - vst $40 - borrow $20). Technically you are still vested 40% in $100. Your suggestion would have one vested 40% in $80 and 100% in $20 - total vested amount would be $52 - doesn't work! Relius essentiall has 40% in each account, so it works.

WHen paid back, loan acct is $0 and $20 has returned to whatever the vesting current is, not current vesting on the 'asset' and 100% on the $20.

Does this make sense?

[pmacduff]

I am sorry, you totally lost me!!! What I am saying is that the principal balance in the loan account is 100% vested, regardless of where the monies came from and the participant's vested percentage. My simple examples...100% vested in $2000 and borrow $1000 which "transfers" from my investment funds to the Loan Account. I am 100% vested in that $1000. Now, let's say I'm 40% vested in $2000, or $800. I can borrow $400 of that $800 which "transfers" from my investment funds to the Loan Account. I am then 100% vested in that $400. I am not vested in 40% of $400 ($160) in the loan account or I could not have borrowed it (in most situations with the standard 50% of vested balance loan available)! Follow me?

[rcline46]

I follow, but you are looking at only 1/2 (NO PUN) of the problem. 100% vesting in your entire balance doesn't count. OK, it won't show the problem.

Start with $2000. All er money so no 100% vesting. You are 40% vested in the $2000 or $800. You borrow 1/2 vested amount or $400. So far, ok. Instead of 1 account, 40% vested, you have 2 accounts, PSP and loan. Total accounts are $1600 PSP account and $400 loan account.

(when I lose you let me know!)

Your vested amount is still $800. You want the loan account 100% vested ($400). That leaves the PSP account with $400 vested money. (400+400 = 800 - that number CANNOT change)

So the PSP acount of $1600 has $400 vested in it, or 25% vested.

Even though you are 40% vested, you now see 25% vesting in one account, 100% vesting in the other account. This is just impossible to program.

But let's continue. You pay back $50 (ignore interest, because it makes it REALLY complicated!). You now have a 100% loan account worth $350 and a $1650 PSP account at $450 vested, and I don't want to calculate the vesting %! But its somewhere between 25% and 40%. And so forth. If you saw this on your statement, that you were NOT 40% vested, you would go bananas, I guarantee!

Now do it the Relius way - BOTH accounts 40% vested. 40% of $1600 is $640, 40% of 400 is 160 total 800.

Pay back $50, which is 40% vested ($20). PSP 1650 at 40% is 660, loan 350 at 40% is 140, still $800. Smooth operation, no explanations.

The loan rules say you only pledge 50% of your vested account as loan collateral. Nowhere does it say you are actually borrowing vested money, you are just borrowing money against a pledge.

If the plan is NOT an individual account plan the same loan is just an asset of the plan, and everyone owns a prorata piece of it. There is no vesting attached. In an individual account plan it becomes an asset of the borrower, just like any other investment. Vesting just applies to the asset.

[Tom Poje]

My good buddy Mr Cline:

Hope to see you again - good grief - only 4 months to the ASPA conference.

you said

'This is just impossible to program.' In regards to the loan.

I disagree, I think it is possible.

Lets take a case of a plan having ps money only.

ee is 40% vested, has $10000 balance and borrows $4000.

If the system treated loans as it does distributions, it would calculate the vested balance in the profit sharing account as follows:

ee had 10000, borrowed 4000, so balance is now 6000 in ps ans 4000 in loan.

to calculate vested balance in the ps account I take the 6000, (and treating the loan as a distribution) add back the 4000, multiply by the vesting %, which of course says ee's vested balance is 4000. I now offset this by the amount of outstanding loan. his ps account could easily show end bal = 6000, 40% vested, but vested balance = 0. Confusing, yes, but in reality a true statement since the person has actually pulled out his vested amount.

his loan account shows 100% vested.

Now suppose he defaults on the loan. well, he is not due anything from the ps account, so that is correct showing 0 vested balance. A loan, for all practical purposes is a distribution and should so 100% vesting. It is simply an odd type of distribution that is intended to be paid back.

[rcline46]

Ah, the crux of the matter! A loan is an asset. Ask any bank or financial person. The recipient has a liability.

Loans may be unsecured, or secured. If secured you may pledge personal stuff, or up to 1/2 you vested balance (at time given).

It is not a distribution and therefore vesting is irrelevant in the loan amount.

Consider our instant case - only now the $1600 falls 75% to $400. The total balance is now $400 PSP plus $400 loan or $800. You are still 40% vested in $800 or $320. Yet you want the loan to be 100% vested. Does not work. My way still gives the correct answer.

[Guest JohnB10]

This is a great message thread.

I'll start out by saying I'm in agreement with Mr Cline. Loan accounts don't have to be 100% vested. However, I do think loans can be processed either way...just not on Relius Admin. If you really want to be able to process loans both ways, someone needs to lobby to get it onto Corbel's enhancement list.

One thing that should be changed, though, is the vested % of 0% on the census report mentioned in the original message...clearly 0% is wrong.

Finally, if you originate loans by always pulling from deferral $ first, you'll end up with fewer loans vested at less than 100%.

THANKS!

[pmacduff]

I agree with rcline that "vesting is irrelevent" in the loan account. That being said, then I think that NO vested % or vested balance should show on the Relius reports for the loan accounts. Most of the participants in my plans would question the fact that their statement shows them 0% vested or partially vested in loan principal balance monies that they already borrowed! The great majority of our plans treat the loans as part of the individual's account, not a plan investment. I would like to thank everyone for their comments and I agree with JohnB10 that I will have to lobby Corbel to get it changed if I want (especially the fact that the census forms reflect 0% vesting).