Can a fiduciary have a deemed distribution on a defaulted loan?

[M Norton]

2-doctor medical practice sponsors a profit sharing plan.

Doctors are the trustees; employer is plan administrator

Participants have self-directed individual brokerage accounts.

Plan allows for plan loans and hardship distributions.

No other inservice distributions are allowed

In 2007 one doctor took $59,500 out of his account as a plan loan.

Repayments were deposited into plan account in 2007 in amounts sufficient to restore excess loan amount and pay interest.

Loan balance at 12/31/07 was $46,940

No loan payments were made in 2008.

In November 2008, same doctor took out an additional $25,000 loan from his account.

The first loan is in default (no payments in 2008), but can a fiduciary default on a loan?

Any suggestions on how they can fix this plan - VCP, VFC?

[rcline46]

1. Tell them they need an ERISA experienced attorney to fix the problem OR make sure you bill well for every minute you spend on the problem. Get an engagement letter and deposit.

2. Do not EVER AGAIN let a client handle ANYTHING to do with an ERISA plan without going through you first.

[M Norton]

I guess I didn't make it clear that this is not my client. The client's attorney called us asking for advice. The client does its own plan administration, which is why the plan is in trouble. We are trying to make a recommendation to the attorney about options available. Our first recommendation is that the client find a competent third party administrator for their plan to prevent problems like this in the future.

[K2retire]

Of course, having a TPA doesn't guaranty that the client will consult them before taking money out of the plan!

[rcline46]

Actually, Rev Proc 2008-50 has all of the corrections needed in it. They should suffer the consequences of their actions.