Restricted HCE payment

[Jim Norman]

Former HCE wants to get his lump sum and is willing to pledge real property as collateral. Anyone here ever work with someone who can provide the escrow arrangement? Could this be done where a lien is recorded on the property in favor of the escrow co?

Thanks.

[Andy the Actuary]

This does not answer your question and is not intended to insult your intelligence, but note that the Plan should codify however the restriction/distribution will be treated.

[Jim Norman]

This does not answer your question and is not intended to insult your intelligence, but note that the Plan should codify however the restriction/distribution will be treated.

The plan provides for any of the three options, property in escrow for 125%, letter of credit or a bond. This person has a fair amount of unencumbered real property, so is interested in pursuing the option of using it to secure the payment of the restricted amount.

[Effen]

FWIW, I had a situation last year where the client wanted to put real property into an escrow account to cover a distribution to an HCE. I had several discussion with head of the VCP/CAP program in my district who ran it past the national office and came back with a big "NO GO". They were very clear that real property is not acceptable. They said only cash money would be acceptable for the escrow solution.

[Jim Norman]

FWIW, I had a situation last year where the client wanted to put real property into an escrow account to cover a distribution to an HCE. I had several discussion with head of the VCP/CAP program in my district who ran it past the national office and came back with a big "NO GO". They were very clear that real property is not acceptable. They said only cash money would be acceptable for the escrow solution.

Thanks Effen, good to know this. Of course this is not what their own RR 92-76 says. It states "property having a fair market value equal to at least 125 percent of the restricted amount." Seems to me if the author of the RR thought it had to be cash it would state such. The terms "property" and "fair market value" certainly imply something other than cash. And if it were cash, why 125%? If it were cash, why not just 100% like the bond and the letter of credit options?