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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10163
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am terminating a defined benefit plan and rolling it over

Customer Question

I am terminating a defined benefit plan and rolling it over to my 401K. My DB plan has an outstanding loan and I was told by my pension advisor I had to pay back the loan before I could do the rollover. I don't have the money to do that and I want to roll the loan over into the 401K. But I was told I cannot rollover a loan. When I research this I read that you cannot rollover a loan treated as a distribution. But in my case it's not a distribution, it's still a loan. I mentioned this to my pension advisor and she said she didn't know.
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Hello

When you have an outstanding loan from one plan and want to rollover to another deferred account (like the 401k) the outstanding loan cannot be absorbed by the new account.

A loan that is not repaid under the plan rules goes into default and that is treated as a distribution for the remaining loan amount.

It is still a loan because the deferred account is still active and the payments are being made. If the account no longer exists then the loan cannot be completed and it defaults (becoming a distribution).

The IRS advises about roll overs here

http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Rollovers-of-Retirement-Plan-and-IRA-Distributions

I know on that page it says "Loans treated as a distribution," are not allowed and that refers to your old plan that would no longer be active if all is rolled over to the 401k.

I sincerely ***** ***** could tell you that you could accomplish what you want to do.

Customer: replied 1 year ago.
What I really want to do is freeze my DB plan so I am no longer required to contribute to it. I was told the only way to do that is to terminate it and roll it over to another qualified plan. Is there a way I can freeze it and not be required to contribute to it, yet keep it open so I don't have to pay off the loan?
Expert:  Robin D. replied 1 year ago.

The plan document would have that information. It sounds more like your defined plan is a Cash balance plan. They are more like 401ks than other defined plans and that is why you can roll them over to 401ks.

All they all have rules the plan document of each still defines what is allowed and when you can and cannot contribute.

Customer: replied 1 year ago.
It's a defined benefit plan and my contributions used to be voluntary. 6 years ago the IRS changed the laws and my contributions became mandatory because my plan was underfunded to meet the stated benefits. Are you familiar with that change? That is why I need to free it - I cannot afford to fund it.
Expert:  Robin D. replied 1 year ago.

I am familiar with underfunded defined plans and the need for employee contributions. Not your specific plan but the rule in general.

I understand your choices are limited on switching when you have an outstanding loan unfortunately.

Customer: replied 1 year ago.
I sorry, but I don't feel you were knowledgeable enough about this to help me. I researched it on my own and what I found is that it seems to depend on if the plan's loan procedures operate to "deem" the loan for tax purposes. The way I read 1.72(p)-1, Q&A-11 and -12 is if the plan's terms and the plan's loan procedures don't require the loan to be deemed, then it can be rolled over as a participant loan is merely another asset in a defined benefit plan. My plan does not say anything about deeming loans so I am going to roll it over.
Expert:  Robin D. replied 1 year ago.

I will be happy to place your question back on the open list. That way another expert can also respond.

Expert:  Robin D. replied 1 year ago.

You will be alerted when another expert has posted.

Thank you and best wishes

Expert:  Lane replied 1 year ago.

Hi,

...

I am a CFP Practitioner, a CRPS (Chartered Retirement PLans Specialist), holding a J.D (Law degree) and an MBA in Finance in Tax.

...

Yes, you can do this if your plan document allows. THATs' what everything will turn on.

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There are three regulators for ANY qualified plan DB or DC (1) Dept of Labor (under ERISA), IRS (Title 26 USC) and the plans' plan document (not UNrelated to ERISA).

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And although IRS and DOL have administrative authority, if the plan document does not allow, it all stops there.

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IF THE PLAN DOCUMENT ALLOWS ... AND THE RECEIVING PLAN'S PLAN DOCUMENT ALLOWS...

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Just calculate a new payment amount based on it being paid off on the prior payoff date or before - not based on it being paid off on any date (even one day) beyond when it was previously scheduled to be paid off.

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A private Letter Ruling (although not holding the authority of law, a good guess as to what IRS will allow going forward) a few years ago that said, YES, not ONLY that you can roll it over, but that minor differences in payroll processing dates (i.e., the prior employer paid its employees weekly, and the new employer pays twice a month) wouldn't cause the loan to fail 72(p).

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This is what you're seeing.

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Just be sure you're in compliance with plan documents all round.

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If one or both plans DON'T allow, and you have the ability to affect this, you can amend the plan documents to do so (and of course there are procedural rules there).

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You're reg on this is Reg. 1-401(a)(31)-1 Q/A 16

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Hope this helps

...

Lane

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If this HAS helped, (and you DON’T have further questions on this), … your positive rating … (by clicking or touching the stars or smileys on your screen) … would be appreciated!That’s how we’re credited for the work here.

.

Expert:  Lane replied 1 year ago.

Hi Larry,

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Just checking back in to see if I could help, and to make sure you saw my answer.

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Qualified plans are what I do.

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I'll make what's called an additional services offer to see if you'f like to discuss (I can also help by talking to the Plan administrators for you ... sometimes the front lines folks just don't know what to do

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No need to accept if you don't want to go that route, we can continue here.

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But if this HAS helped, given you enough to move forward, your positive rating … (by clicking or touching the stars or smileys on your screen) … would be appreciated!That’s how we’re credited for the work here.

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Let me know

...

Lane

..

Customer: replied 1 year ago.
I appreciate you taking the time to answer, but when I posed my question I thought I was sending it to a specific expert that I had worked with before. I have contracted just answer support 2 times about this, but they do not reply. Anyway, when I got the first answer from Robin D that was not adequate I undertook the research myself and I came up with the info I needed, and showed to my pension advisor they said I could rollover the loan. This was before your answer came through. I wanted to take down my questions because I didn't need the help any more, but there does not seem to be a way to do that.
Customer: replied 1 year ago.
now I see that justanswer has charged my credit card anyway. Very unhappy with this website.
Expert:  Lane replied 1 year ago.

I'd simply ask that you understand the we experts are users like you.

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(just with verified credentials)

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Would also ask that you understand that we expert users don't get credited with a penny (and it's only a portion of whhat you pay them) unless you give us a positive rating.

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So, unless you're going to ask them for a refund, I'd ask that you rate me positively (or JA will just keep it ALL)

Customer: replied 1 year ago.
I cannot get JA to respond to me so I will have to take it up with my credit card company
Expert:  Lane replied 1 year ago.

Customer Support

We’re here to assist you.
How would you like to contact us?

Email | Chat | Phone

Customer: replied 1 year ago.
I have both emailed and chatted them and I have received no reply.
Expert:  Lane replied 1 year ago.
  1. 1(###) ###-####/p>

Customer: replied 1 year ago.
phone is not my preferred method of communication.
Expert:  Lane replied 1 year ago.

If you're not going to rate me positively, please, no need to respond further.

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I've done everything I can do. (for no crediting at all) Hope you'll understand

Customer: replied 1 year ago.
By the time you replied I already had the info I needed. So your info did not help me. If I could have taken my question down I would have.
Expert:  Lane replied 1 year ago.

I understand ... good luck with it ...

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Next time, if you'd like MY help just say For Lane and I'll get the alert

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