CARES Act Loan Suspension

On a call with a huge recordkeeper (TIAA) who is taking the position that participants who elected a loan payment deferral  don;t have to make any payments for a full year.

I personally read the law to say that payments due in January are  NOT extended.  I think its nuts that not everyone is on the same page on that...  I think there is near universal agreement on that but I assume TIAA paid a "pretty good" ERISA attorney to advise them on that policy...
 

39 minutes ago, austin3515 said:

On a call with a huge recordkeeper (TIAA) who is taking the position that participants who elected a loan payment deferral  don;t have to make any payments for a full year.

I personally read the law to say that payments due in January are  NOT extended.  I think its nuts that not everyone is on the same page on that...  I think there is near universal agreement on that but I assume TIAA paid a "pretty good" ERISA attorney to advise them on that policy...
 

We're doing as TIAA is doing.  Requiring reamortization as of 1/1/21 does not give full effect to the law, which allows one year deferral.  Restarting regular loan payment on 1/1/21 while still deferring 2020 payments until the year is up (discussed in the IRS guidance as "one" of the "reasonable alternatives") is simply not workable for recordkeepers using core OMNI functionality (where any new loan payment made is automatically applied to the longest outstanding missed payment (which means, the 1/1/21 payment is applied to a "deferred payment."  The TIAA option was discussed, Groom law said it appeared "reasonable" and SPARK, ICI, ACLI, ARA and it's subsidiaries ALL discussed it in their comment letters to the IRS, asking that the IRS *NOT* eliminate any of the 3 options, and only provide a "safe harbor" while not ruling out the alternatives.  That's what the IRS did - a safe harbor, with "other reasonable alternative" and they provided an example of only ONE of the reasonable alternatives, leaving the door open.

In case you haven't heard it before, but loans are evil.  Temporary changes/extensions/requirements to loans (such as CARES Act loan changes) make loans positively hellish.  We can incur the time or expense to reprogram entire systems for something that has a short shelf life.

You're correct with regard to the COVID payment suspensions. Payments due starting in 2021 have to be timely made, but those due through 12/31/2020 can be suspended for a year (into 2021) from the date of COVID suspension.  

However, if a participant has gone on an approved Leave of Absence, and the Loan Policy allows, they can take up to a one-year suspension under the regular LOA rules (I assume starting from their date of LOA).

I don't know Andrew, MoJo sounds pretty convincing :).

But here is another thought, though I hate to be practical when practicality is so rarely a consideration!

Could you imagine what a nightmare it would be track all of these elections independently and know when to resume payments based on each individuals personal election?  That could be "unruly" unless there is some really rock solid system in place (like a 360 bridge).  Overall, this would be a recipe for disaster. Resuming all payments 1/1/2021 is a LOT easier...

1 hour ago, austin3515 said:

I don't know Andrew, MoJo sounds pretty convincing :).

I agree that trying to administer those loans is an unreasonable nightmare, but I haven't heard that we have a choice! I don't believe any of the many major recordkeepers we're working with are taking the position that loan payments due later than 12/31/2020 can be extended. I'll have to look into it.

3 hours ago, AndrewZ said:

I agree that trying to administer those loans is an unreasonable nightmare, but I haven't heard that we have a choice! I don't believe any of the many major recordkeepers we're working with are taking the position that loan payments due later than 12/31/2020 can be extended. I'll have to look into it.

We are.  We aren't Fidelity, but we aren't chopped liver, either (11,000 plans, $55 billion or so in assets).  Read the regs - they "clearly" say one safe harbor, and other reasonable alternatives - with only one of those alternatives being used as an example.  If there are other alternatives that are "reasonable" apart from the safe harbor of the one example, it *must* do exactly what you say can't be done.

I agree with you, austin3515, that the method you describe  is not consistent with the statute and does not seem to be one of the methods protected by 2020-50. In the current regulatory climate, however, you may be safe if you stick with the herd, or at least a large enough sub-herd.

16 hours ago, MoJo said:

We are.  We aren't Fidelity, but we aren't chopped liver, either (11,000 plans, $55 billion or so in assets). 

Am I mistaken or does that connect with a household name for recordkeepers that we  have all heard of?  You don't have to name names obviously (certainly I, of all people, understand the need for anonymity and "mystery"!). 

On 11/6/2020 at 6:27 PM, Luke Bailey said:

I agree with you, austin3515, that the method you describe  is not consistent with the statute and does not seem to be one of the methods protected by 2020-50. In the current regulatory climate, however, you may be safe if you stick with the herd, or at least a large enough sub-herd.

I'm not sure how you can conclude it is inconsistent with 2020-50.  That notice specifically provided a safe harbor, and specified that there were other reasonable alternatives (PLURAL), and then provided ONE example of such a reasonable alternative.  Granted, using something else puts the burden on the user to prove it's "reasonableness" but it isn't ruled out....

"(A) if the due date pursuant to subparagraph (B) or (C) of section 72(p)(2) of such Code for any repayment with respect to such loan occurs during the period beginning on the date of the enactment of this Act and ending on December 31, 2020, such due date shall be delayed for 1 year,"

If you just read the plain text of the statute the due date for the January payments is simply not extended.  I don;t see any possible reading of the statute that provides an extension for payments due in January.  Because there is no way read for such a deferral, could it be a reasonable interpretation?

Now, TIAA-CREF is no insignificant institution.  If its good enough for TIAA I'm sure others will conclude the same.  And I don't believe for a second TIAA did not speak to someone high up at the IRS for a blessing.  I assume they can get the right people to answer their calls.  But purely as an academic exercise I think Luke is spot-on.

19 minutes ago, austin3515 said:

"(A) if the due date pursuant to subparagraph (B) or (C) of section 72(p)(2) of such Code for any repayment with respect to such loan occurs during the period beginning on the date of the enactment of this Act and ending on December 31, 2020, such due date shall be delayed for 1 year,"

(B) any subsequent repayments with respect to any such loan shall be appropriately adjusted to reflect the delay in the due date under subparagraph (A) and any interest accruing during such delay,

The January payment is a subsequent payment with respect to the suspended payment and therefore would be appropriately adjusted to reflect the delay by adjusting its due date.

"You just blew my mind."

Kramer

4 hours ago, MoJo said:

Granted, using something else puts the burden on the user to prove it's "reasonableness" but it isn't ruled out....

MoJo, I should have said "clearly protected." It is neither the safe harbor, nor the one example of another reasonable method included in 2020-50, but I agree that does not foreclose the possibility that it would be viewed as reasonable. Agreed.

3 hours ago, C. B. Zeller said:

The January payment is a subsequent payment with respect to the suspended payment and therefore would be appropriately adjusted to reflect the delay by adjusting its due date.

Say again? The suspended payments were the ones in 2020. The January, 2021 payment is not suspended by the statute. Again, if the IRS permits the further deferral, which they probably will, then it will be fine. I'm just saying it is hard to get that interp out of the statute and the guidance to date.