Editor’s Observe: That is the seventh installment in a collection regarding correcting plan loan failures.
Q. May a plan’s loan program be restricted to lively workers (i.e., doesn’t enable a former worker that could be a party-in-interest to request a loan)?
A. A participant loan is a prohibited transaction until it satisfies the entire statutory exemption necessities, together with the requirement to make loans out there on a fairly equal foundation. A loan program that excludes former workers violates this requirement. DOL Advisory Opinion 89-30. Nevertheless, a plan may restrict loans to former worker members who’re events in curiosity. Within the state of affairs described, one violates the prohibited transaction exemption requirement and your loan program is a prohibited transaction. The plan must amend its loan program to adjust to the exemption necessities.
Editor’s Observe: This content material is taken from “Loans: Correcting Taxation, Qualification and Fiduciary Failures,” an April 15, 2020 ASPPA Webinar offered by Stephen W. Forbes J.D., LL.M. of Forbes Retirement Plan Consulting.
Opinions expressed are these of the creator, and don’t essentially mirror the views of ASPPA or its members.