BenefitsLink logo
EmployeeBenefitsJobs logo

Search the News

Featured Jobs
401(k) Consultant/Administrator
Defined Benefit Retirement Plan Distribution Specialist
Retirement Plan Coordinator
Investment Advisor - Retirement Plan Services
Senior Retirement Plan Administrator / Consultant
Account Manager
401(k) Plan Administrator
Retirement Plan Administrator/Consultant
Senior Pension Administrator
Retirement Plan Consultant/Administrator
Compliance Consultant
Search all jobs
Get the BenefitsLink app for iPhone and iPad LinkedIn

Jump to content


DC Plan Termination - No Successor Plan - Outstanding Participant Loans

  • Please log in to reply
5 replies to this topic

#1 cease


    Registered User

  • Registered
  • 92 posts

Posted 10 May 2005 - 01:02 PM

Company A does not have a retirement plan. Company B has a 401(k) profit sharing plan. Company A acquires Company B. Company A does not want to have a retirement plan and wants to terminate Company B's plan. Company B has partcipants with outstanding participant loans. All Company B employees will become employees of Company A.

Can Company A terminate Company B's plan and what would happen to the outstanding loans?

#2 chris


    Registered User

  • Registered
  • 629 posts

Posted 11 May 2005 - 07:58 AM

What does the purchase agreement say about stock vs. assets and how does it address what happens to Company B's plan? If the plan is terminated by whomever then outstanding loans would be treated as distributions and be taxable to the participants. Just my 2 cents.....

#3 wmyer


    Registered User

  • Registered
  • 311 posts

Posted 11 May 2005 - 10:05 AM

Check the plan document to see what it says happens to loans in the event of plan termination. Chances are, it will say that any unpaid balances are offset, which means that they would become taxable to the participant.

#4 Kirk Maldonado

Kirk Maldonado

    Registered User

  • Registered
  • 2,396 posts

Posted 11 May 2005 - 09:09 PM


Maybe I'm missing something because I'm very tired, but why do you have to consult with the plan documents?

How could you have an outstanding loan continue after the plan is terminated? To whom would the person make the loan repayments?

Wouldn't the continued existence of the loan be fundamentally inconsistent with the termination of the plan?
Kirk Maldonado

#5 JDuns


    Registered User

  • Registered
  • 178 posts

Posted 12 May 2005 - 10:14 AM

If the plan permits distribution in cash or kind and the promissory note supporting the plan loan permits assignment or transfer, it is possible to distribute the note. If the participant could find a plan or IRA willing to accept the rollover in kind (i.e. accept the note) the participant could avoid the income tax hit at the time of the distribution (subject to issues if they default on their repayment obligations).

I have seen plan loans transfered to the buyer where the plan loan is rolled into the buyer's plan and payroll deductions continue to be made to repay the loan. I have never seen an IRA provider accept a loan/note in a rollover, but it is theoretically possible.

Hope this helps.

#6 mbozek



  • Sitewide Moderator
  • 5,454 posts

Posted 12 May 2005 - 10:45 AM

IRC 408(e)(4) prevents pledging any part of an IRA as security for a loan to the IRA owner. The amount used as security will be deemed distributed.