Q. My company has not held a payroll slot with the current non-ERISA employer since 1999, but we still have a few accounts written while we held the payroll slot. One of those participants has just applied for a loan. How do we handle that?
A. Revenue Procedure (Rev. Proc.) 2007-71 clearly states that accounts held by a product provider that did not receive contributions for any employee after Jan. 1, 2005, is a grandfathered orphan account and is not a part of the employer’s 403(b) plan (nor are those accounts required to be made a part of that plan).
Thus, you may deal directly with the participants as they request transactions such as loans or hardship withdrawals. The IRS cautions us that those participants must still comply for the rules for such transactions; thus, your loan or withdrawal forms should remind those participants of the rules and ask that they confirm eligibility for the requested transaction.
Q. Would your answer be different if, in fact, our company had received contributions after Jan. 1, 2005, but had been de-selected before Jan. 1, 2009?
A. Yes! Rev. Proc. 2007-71 requires that non-grandfathered orphan accounts continue to be a part of the employer’s plan. Employers are required to make a good faith effort to include those accounts by reaching out to the relevant providers to provide information for information sharing before the granting of any loans or hardship withdrawals. In the absence of such information sharing, participants requesting such transactions should not be granted those loans or hardship withdrawals.