Message Boards Digest

March 7, 2022

Here are the most recently added topics on the BenefitsLink Message Boards:

mming created a topic in Distributions and Loans, Other than QDROs

PT Aspects of Defaulted Loan in Light of Continued Deferrals (an Increasing Account Balance)

"Last summer a participant took a maximum loan equal to 50% of their VAB, to be set up for repayments via payroll deductions twice a month. No repayments have been made to date. The outstanding balance of the loan went over 50% of the VAB once the first repayment was missed due to accrued interest, though eventually it went down below 50% due to continued deferrals.

It's a PT if a loan for an amount exceeding 50% is taken and a Form 5330 should be filed for the excess. Is it also a PT if the loan's initial amount is OK but the 50% max is breached due to accrued interest from non-payment?

If this is a PT, does a 5330 need to be filed even if the outstanding balance went below 50% before the end of the year? Hopefully not, because the excise tax in this case would be far less than $100.

It seems that section 6.07(3)(d) of Rev. Proc. 2021-30 permits self-correction of loans whose IRS maximum cure period has expired (this occurred on this loan 12/31/21) if the participant pays a lump sum for the missed payments with interest to bring the loan current. So it appears the loan becoming a deemed distribution won't be an issue if the participant does this, even if it happens in the following year.

I suspect that the employer neglected to set up the automatic payroll deductions for the repayments, and I remember hearing that the employer may be liable for some of the repayments. Does anyone have any info on this, or know where I can read about it?

It's surprising to see that some of the major recordkeepers do not add interest for missed payments onto outstanding loan balances. I thought they were required to do so."

1 reply so far   |    Click Here to Add a Reply

Jakyasar created a topic in Retirement Plans in General

Gateway Contributions Required Here?

"Checking a design for someone. 401k + SH match + PS are the provisions. Plan is top heavy. 401k + SH has age 21 and no service for eligibility. PS has 21/1. The sponsor will be making a PS contribution (all in their own group). All satisfying the eligibility get the gateway (a little over 3%). I have 2 participants employed in 2021 (both worked over 1,000 hours in 2021) and entered the plan in 2021 and also deferred (I have 5 others employed late 2020 or in 2021 but did not defer). So they got the SH match. But they do not get PS/gateway because they are otherwise excludable employees. The other 5 who did not defer got no match and no PS/gateway. Am I correct?"

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Griswold created a topic in 401(k) Plans

Stock Options Counted for Purposes of 'Key Employee' Definition's 1% Owner Prong?

"Are options counted for purposes of determining key employees under the 1% owners prong? The regulation says a 1% owner is any employee who owns 'more than 1 percent of the value of the outstanding stock of the corporation or stock possessing more than 1 percent of the total combined voting power of all stock of the corporation.' Treas. Reg. §1.416-1 T-16. Assuming the options don't have voting rights, to me this says you don't count options as they're not outstanding stock. Is there any authority that says otherwise? Perhaps if the options are fully vested the employee might own 1 percent of the value?"

2 replies so far   |    Click Here to Add a Reply

bzorc created a topic in Plan Document Amendments

PPA Restatement for Individually Designed Plan

"Here is a question that I have regarding a plan document. I took over a couple of plans as the TPA from a partner who retired back in 2016 from our firm. When the partner retired, they provided me the documents for the plans. They are all EGTRRA documents, with dates in 2009. The partner utilized the Relius volume submitter document for the restatement. They were filed as individually designed plans, and have a determination letter from the IRS, under the company name. I also have executed 415 and PPA amendments. One of the companies is in the process of being sold, and the purchasing company is looking for a copy of the PPA restatement for the plan. I have searched our company archives and can find no mention of a PPA restatement. I have reached out to Relius to see if there is a PPA restatement completed before the 4/30/2016 deadline. My question is, was a PPA restatement necessary, because the plan was submitted as individually designed? I only work with prototype plans, and I've never utilized a volume submitter plan that was submitted to the IRS as an individually designed plan."

2 replies so far   |    Click Here to Add a Reply

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