RMD and no liquid assets in plan

[Earl]

Guy has a PS Plan Trust and put almost all of the money in a Mortgage Pool.

Pool is now in Chapter 11 and assets are frozen.

He does not have enough accessable money to meet RMD. What to do?

Only things I can think of are:

1. Take what cash he can, 1099 on full RMD, take rest of money when pool is unfrozen. (If it unfreezes at $0, amend the 1099 to the actual amount taken? But required amount didn't change...)

2. Take what cash he can, 1099 that amount.

Thanks for any ideas on this.

[ERISAnut]

Find a buyer for the his share of the ownership in the mortgage pool and use those funds to meet the RMD.

Regardless of the freeze, this PS plan has the responsiblity to value all assets at least annually. Once the employer figures out how to appraise this asset for fair market value, then you have the amount to base your RMD on. Also, he should attempt to sell that ownership (now that a valuation was done).

It would normally be funny, except for the fact that there is a huge mortage crisis, when someone invests qualified plan funds in illiquid assets that end up hard to value.

[Earl]

As of 12/31/07, the val date for this year's RMD, there was no liquidity or valuation issue.

Then, last month, the guy running the pool suicided and the regulators came in. Even if he were to get $0.25 on the $1 it would not be enough to satisfy the RMD so selling is not really an option to solve this.

You have an odd sense of humor.

[jpod]

1st thought: somewhere in the 401(a)(9) regs there must be something that says that the amount of the RMD cannot be greater than the amount available for distribution at the time of the distribution (but even if there isn't something that says that I think that is a reasonable interpretation of the law).

2nd thought: another alternative to consider is to document the situation carefully, and if there are no funds available by the deadline for taking the RMD but he starts taking money out as soon as funds are available, I think he would have a pretty solid argument for waiver of the Section 4974 50% excise tax, and why there should be relief from the operational violation per SCP.

3rd thought: if this is a one-person plan, or if his plan account is the only account invested in the Mortgage Pool, perhaps the IRS would prefer - in lieu of my 2nd thought - that he take an in kind distribution of the Plan's interest in the Mortgage Pool (assuming it is transferable in this fashion)

[ERISAnut]

jpod,

You are correct. Even the IRS is understanding enough to know that you cannot take what is not there. So, in the event the funds (or assets) are not available, then the account is effectively exhausted. You are likely looking for the most effective way, operationally, to close down the plan.