5500 reporting of defaulted loan deemed destributions

[Guest Destruo]

Does anyone find a problem with the proposed 5500 Schedule H instructions on the reporting of "deemed distributions"? The instructions indicate that amounts that were treated as deemed distributions in the current or prior year should not be included in plan assets as of the end of the year. Does this conflict with guidance that deemed distributions are not distributions for all purposes, and that a participant's account may not be "offset" (distributed) until a distributable event occurs?

I'm curious how other practicioners anticipate completing this question and how deemed distributions will be reported on participant statements (as an asset, or a distribution?)

Oscar

[BeckyMiller]

For what it is worth, we have the same question. For plans subject to a financial audit, the GAAP rules require that loans which are not offset at the time of default will remain plan assets. Thus, if material in amount, you will see a reconciling item between the financial statements and the Form 5500 for this difference.

For the IRS to take this approach on the financial schedule seems really inconsistent, but when you look at the instructions, it is pretty clear that they did it on purpose.

[Guest Elinor Merl]

In informal conversations with the DOL on this issue, the response we received confirmed that the DOL was aware of the "disconnect" between the IRS tax rules and the DOL's Form 5500 reporting rules.

I agree that the reporting will require a reconciliation between the participant records/trust and the DOL reporting.