5500-SF 10g Deemed Distributions

[Catch22PGM]

I can't find guidance in the 5500 instructions or the 5500 Preparer's Manual, so I'm looking for opinions - or maybe something I've missed.  Two questions:

1. If the only loans in a self-directed 401(k) plan have been deemed distributed in a prior plan year (not offset), is 10g answered yes or no?  For example, the only loan in the 401(k) plan was deemed distributed in 2022 - should 10g be yes on the 2023 Form 5500-SF?

2. Do outstanding balances for loans that have been deemed distributed (not offset) continue to be included in the amount on line 10g?

I'm leaning towards yes, and yes, but I have nothing to back me up. Even though they are deemed, they are still participant loans, but since they are no longer reported as assets on the 5500... I'm torn.

[Kattdogg12]

Both answers are No because it has been taxed, so no longer reported on the 5500 (unless it starts to get repaid).  But you keep track of them separately on your financials.  So, for our val reports, we have two asset/income statements, one that ties to our participant statements, one that ties to the 5500.   I couldn't find something more current, but this explains a little: 

[Catch22PGM]

Unfortunately I don't see that this answers the original question.  I obviously agree that the loan balances are no longer shown as plan assets in the financial portion of the 5500-SF, Schedule I, or Schedule H.  I am specifically referring to the compliance question 10g of the 5500-SF.  The Schedule H has no such line because the participant loans are broken-out in the assets on line 1c(8).  The Schedule I instructions specifically state that loans that are deemed distributed should not be included on line 3e in the Specific Asset section.  I guess we can infer that since loans deemed in a prior year aren't shown on the Schedule I or Schedule H we shouldn't include them in the compliance section of the 5500-SF, but I can't find anything that supports that opinion.

[Kattdogg12]

The instructions are a little confusing, but they kind of do say not to report:

For line 8e, also include in the total amount a participant loan included in line 7a, column (a) that has been deemed distributed during the plan year under the provisions of Code section 72(p) and Treasury Regulations section 1.72(p)-1 only if both of the following circumstances apply: 1. Under the plan, the participant loan is treated as a directed investment solely of the participant’s individual account; and 2. As of the end of the plan year, the participant is not continuing repayment under the loan. If either of these circumstances does not apply, a deemed distribution of a participant loan should not be included in the total on line 8e. Instead, the current value of the participant loan (including interest accruing thereon after the deemed distribution) should be included on lines 7a, column (b) (plan assets – end of year), and 10g (participant loans – end of year), without regard to the occurrence of a deemed distribution. Note. The amount to be reported on line 8e must be reduced if, during the plan year, a participant resumes repayment under a participant loan reported as a deemed distribution on line 2g of Schedule H or Schedule I of a prior Form 5500 or line 8e of a prior Form 5500-SF for any earlier year. The amount of the required reduction is the amount of the participant loan that was reported as a deemed distribution on such line for any earlier year. If entering a negative number, enter a minus sign (“–”) to the left of the number. The current value of the participant loan must then be included on line 7a, column (b) (plan assets – end of year). Although certain participant loans deemed distributed are to be reported on line 8e, and are not to be reported on the Form 5500-SF or on the Schedule H or Schedule I of the Form 5500 as an asset thereafter (unless the participant resumes repayment under the loan in a later year), they are still considered outstanding loans and are not treated as actual distributions for certain purposes

It says if either DO NOT apply (underlined above), then you add with 10g.  Most likely, both DO apply (that's why we are here because the participant is not paying on the loan), so you would show as a deemed distribution on 8e, and not include on 10g. 

Also, if you have Empower clients, on their annual admin report, they break it out and it shows like this:

The 5500 entries ties to the Active Loans column.  

 

Hope this helps.