From reading the regulations in 401(a)(4), it appears that loans are a benefit, right, or feature that must be offered on a nondiscriminatory basis. The regulations seem to say that nondiscrimination is proved only if loans are currently available and effectively available. If my understanding is correct (and it may very well not be), you could write your plan to allow loans only to active employees, but then you would have to prove nondiscrimination which amounts to a ratio percentage test in which all terminated particpants would be treated as not benefiting. Is this correct or am I misguided? Thanks in advance for your help!

Phil -

You raised an interesting question - and I'm not sure of the answer. Since there have been no responses here, I have posted a copy of your question on the 401(k) Board.