Receiving pension distribution and loan default discovered.

[Guest goingbroke07]

On 1/1/02,plan participant elected and started to receive a monthly distribution from a defined benefit plan. In June 02, plan administrator notified plan participant that there was a loan default since the plan receive the last loan payment in

July 00. The loan default was never used as an offset in the calculation in the monthly distribution. What does the plan administrator do and what is the effect on the plan participant?

[Guest b2kates]

It would be permitted for the plan to offset the amount of the default against the beneficiary's monthly distribution.

[mbozek]

Was this loan issued by the DB plan or was this a loan by a DC plan. What was the collateral for the loan if the loan was made from a DB plan? I dont know how you can collaterize a loan by a DB plan against a participant's benefits because there is no account allocated to the participant to use as security. Also I though that the DB plan could reduce benefits because of overpayments but I never heard of reducing benefits because of an outstanding loan. The plan should sue the employee to collect the balance of the loan as a creditor.

[Guest goingbroke07]

There are two separate qualified plans (DB & DC) which operate in a floor/offset arrangement.The DB Is the floor plan as this plan guarantees a minimum level of benefits. The contributions made to the DC are accumulated with earning to retirement and are converted to monthly benefits(annualized).

Participant elected a monthly distribution from the DB and receive a lump-sum from the DC.

[mbozek]

I guess the issue is whether the DC plan account balance is a benefit that can be considered an overpayment by the DB plan because it is part of the flooor offset formula. You need to review the plan documents.

[Blinky the 3-eyed Fish]

Mbozek, it is common for loans in a DB plan to be collateralized based on a participant's present value of accrued benefit. I see no reason for the need to sue the participant, just offset the future annuity payments like b2kates said.

[mbozek]

B: I question if the plan could produce the consent form signed by the spouse. Also I question whether the offset of the DC plan can be properly deemed a benefit under the DB plan. Whose fault is it that the loan repayments stopped in July 00? Thats why suing on the debt is the safer route.

[jpod]

mbozek:

I know where you're coming from, but would you like to be the attorney who has to explain to a judge why you felt it necessary to burden the court's resources with that type of lawsuit?

[QDROphile]

Why is this deadbeat different from any other deadbeat as far as a court is concerned?

[Blinky the 3-eyed Fish]

B: I question if the plan could produce the consent form signed by the spouse. Also I question whether the offset of the DC plan can be properly deemed a benefit under the DB plan. Whose fault is it that the loan repayments stopped in July 00? Thats why suing on the debt is the safer route.

Unlike jpod, I am not quite sure where you are coming from.

First, in any loan where annuities are an optional form of benefit any competent adminstrator would realize the need to obtain spousal consent at the time of the loan. Why do you think they didn't?

Second, I do not understand the relevance or the content of the second sentence.

Third, why is this situation any different than a loan from a DC plan where there is an existing account balance and an existing loan in default? In that case you would clearly offset the account balance. In this situation you have a loan from the DB plan and an existing benefit. Why is offsetting it not the clear answer? Qdrophile asks why this deadbeat is any different. It's not, but in this case you are asking the deadbeat to pay you but you already have the money.