Mortgage account held in Plan

[52626]

I have a profit sharing plan that held mortgages as an investment option. When the plan went daily, the mortgage assets were allocated to the participants. Each quarter the income and principal paid is allocated to the participants. For several years this worked perfect. There is currently $800,00+/- in this account. The Trustees have been informed that the majority of the mortgages are defaulted can worth zip!!

1. The Trustees will pursue legal action with the entity holding the mortgages - The Employer wil pay all costs associated with this legal proceedings. Any issue with this?

2. Trying to avoid a participant riot when they find out the account has been over valued in the past and there will be no future payments.

Should the Partners, take the HNCEs portion of the mortgage pool? They would need to take funds from their core funds and make the NHCEs whole?

3. There are RMDs that need to be issued - some participants only have a mortgage pool account, so with no income and principle coming in, how can they make the RMDs

4. There are some of these are second mortgages, so the only way of getting money would be to pay off the first mortgage. The Plan Sponsor wants to take some of the core funds for those in the mortgage pool pay off the first mortgage, and then collect.

sounds like a &^%*()*#)( mess if you ask me. We will strongly recommend an ERSIA attorney get involved, but I am just looking for some insight on what to do.

thanks

[Lou S.]

sounds like a &^%*()*#)( mess if you ask me. We will strongly recommend an ERSIA attorney get involved, but I am just looking for some insight on what to do.

thanks

This sounds like the most prudent thing to do but I'll take a shot (I am not a lawyer) -

1. Sounds like a reasonable course of action.

2. That would probably be a very nice and very expensive gesture on the part of the partners. I'd want to run that by legal counsel first to make sure it isn't a PT and if they did do that I'd want a partnership resolution signed by all partners before reducing their account balances and giving it to someone else as there might be a prohibited cutback issues involved with that. Though the IRS & DOL are generally OK with screwing HCEs to benefit NHCEs so if they did do that it would probably fly.

3. Get an independent fair market value of the mortgage pool and base RMD on that. I hope you are referring to 2014 RMDs and not 2013 RMDs due 4/1/14. Because the former you have some time to hope the liquidity issue solves itself.

4. If I was the Trustee I'd say that sounds like throwing good money after bad and would absolutely want a legal opinion before doing that.

Just my $0.02, which sounds like the value of the mortgage pool right about now.

[QDROphile]

Don't get involved with any pieces unless you are prepared to take responsibiity for the whole. The last thing the fiduciaries need is to have advisers working at cross purposes. Also keep in mind that some fiduciary may be facing some liability for getting the plan to this point in the mess so there may be adverse interests involved in workin out solutions.

[masteff]

How on Earth, 5+ years after the devastating collapse of collateralized mortgages, would any plan fiduciary permit their plan to hold so much money in mortgages?

Your item #4 sounds like a breach of fiduciary prudence to me.

If they're going to talk to a lawyer as indicated in item #1, you should advise they be sure it's a firm w/ someone well versed in ERISA because I suspect they'll be filing something w/ the IRS or DOL by the time this is done.