Deals and People December 9, 2014

Multnomah Group Hires Investment Consultant

Retirement plan consulting firm Multnomah Group has hired a new investment consultant for its Portland, Oregon, office.
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Multnomah Group announced the addition of Amy Ouellette as a new investment consultant working out of the firm’s Portland, Oregon, office. She will provide consulting services to the firm’s clients in the Pacific Northwest.

Ouellette joins the Multnomah Group most recently from DWC ERISA Consultants, where she served as a principal and team leader. She is a certified financial planner (CFP) professional certified by the CFP Board, an enrolled retirement plan agent (ERPA) approved to practice before the Internal Revenue Service (IRS) on certain retirement plan issues, and a qualified pension administrator (QPA) through the American Society of Pension Professionals & Actuaries (ASPPA).

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“We are very excited to have added someone with Amy’s experience in retirement plan consulting. She possesses a keen technical knowledge and background that will complement our clients immediately,” says Erik Daley, principal of the Multnomah Group.

Ask the Experts December 9, 2014

(b)lines Ask the Experts – Processing 403(b) Loan Defaults

“I have some questions as to  how 403(b) loan defaults are processed.
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“I realize that, once a participant defaults on a loan, it’s a deemed distribution and a 1099R is issued. But what should happen to the participant’s account? Is it reduced by said distribution? And what happens to the outstanding loan? Is interest still accumulating on the deemed distribution? How is such interest reported going forward?”  

Michael A. Webb, vice president, Cammack Retirement Group, answers:

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Unfortunately, the Experts cannot provide answers to many of these questions, as such answers will vary according to the contract provisions of the vendor that issued the loan. Thus, it is extremely important to have a thorough understanding of the vendor loan agreements so that these issues may be addressed, and to contact the vendor if there is ambiguity. This is especially true in connection with defaults, due to the negative consequences of a loan default to a plan participant.

However, the Experts can make some general statements as to the consequences of loan defaults as stated in the loan regulations under Code Section 72(p), as follows:

1) A participant will not be able to re-borrow after default unless a) payroll deduction is permitted for loan repayments or b) secured by additional collateral held outside of the plan (a rare event in the Experts’ experience). However, see “Ask the Experts: Permitting Loans After a Loan Default” for an exception to this rule

2) Interest that accrues after a loan default will NOT result in additional deemed distributions reportable on a 1099R. However, accrued and unpaid interest following a loan default, will be considered part of the “highest outstanding balance in the prior 12-month period” in determining how much a participant may re-borrow if eligible for another loan.

3) If loan repayments are made following a loan default, such repayments will be treated as after-tax contributions to the plan. However, such contributions will NOT be subject to the nondiscrimination and other rules (e.g. contribution limits) that would normally apply to after-tax contributions. As after-tax contributions, such post-default loan repayments will not be taxable upon distribution.

 

Thank you for your questions, and be certain to examine your loan agreements thoroughly!

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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