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JWK

"Bridge" loans on plan termination

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I'd be interesting in hearing real-life experiences with "bridge" loans on termination of a 401(k) plan (i.e., to avoid loan offset, a short-term loan is made to pay off the plan loan, the account is rolled to a different plan, and a loan from the second plan pays off the short-term bridge loan). If you've used it, were participants advised to find their own outside source of funds, or did an employer lend the funds for the "bridge" loan? If the latter, did you have collection problems? DOL or IRS problems? What if participants with loans are disproportionately HCEs? Did you consider simply grossing up regular comp for the tax hit? Any other problems/issues?

Thanks for your comments.

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Guest mo

I was involved in a situation where my client purchased a portion of another company, and the specifics were such that the ERISA attorney judged that a partial plan term was in order. The employer extended bridge loans to the participants. The only problematic issue I recall is that some of the former participants quit or were let go following the acquisition and the company had no ability to reimburse itself from the account balance. It was difficult for the employer to collect directly from the borrower, given the unemployed status of many of the individuals involved.

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