BG5150 Posted December 11, 2019 Share Posted December 11, 2019 Can a plan have a provision in its loan program that loans are only available from sources that are 100% vested for the participant? QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
Belgarath Posted December 11, 2019 Share Posted December 11, 2019 I'm thinking the answer is no. I don't think this would satisfy the requirement that loans be available on a "reasonably equivalent" basis. But I need to go back and re-look at 2550.408(b)(1)... Link to comment Share on other sites More sharing options...
Belgarath Posted December 11, 2019 Share Posted December 11, 2019 Well, maybe I was wrong in my initial thought. Looks like it could be ok depending upon facts and circumstances. Link to comment Share on other sites More sharing options...
Bird Posted December 11, 2019 Share Posted December 11, 2019 You can definitely restrict it to certain sources and I think it is reasonable to restrict it to 100% vested sources. Ed Snyder Link to comment Share on other sites More sharing options...
BG5150 Posted December 11, 2019 Author Share Posted December 11, 2019 2 hours ago, Bird said: You can definitely restrict it to certain sources and I think it is reasonable to restrict it to 100% vested sources. It wouldn't be a BRF? Some people have access to more sources for a loan than others. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
justanotheradmin Posted December 11, 2019 Share Posted December 11, 2019 20 minutes ago, BG5150 said: It wouldn't be a BRF? Some people have access to more sources for a loan than others. I don't think so. This is an outdated example, but the best I can think of off the top of my head. If a sponsor has more than one plan (such as a money purchase plan) and a profit sharing plan, the participant's vested balance in both is used in determining the maximum loan amount available. But only one plan might actually allow for loans. If only the profit sharing plan allows for loans, then obviously the participant can't take a loan from Money Purchase dollars. I don't see how this is different from restricting sources within a single plan. I'm a stranger on the internet. Nothing I write is tax or legal advice. I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say? Link to comment Share on other sites More sharing options...
BG5150 Posted December 11, 2019 Author Share Posted December 11, 2019 But we do consider the vested balance in all of those partially-vested accounts, right? Example: Participant 50% vested Deferral: 10,000 Match: 5,000 PS: 5,000 Total: 20,000; vested 15,000 Available loan: 7,500 But what if half the vested balance is more than what's in the fully-vested account(s)? What if there is no fully-vested money in there? Example: Participant 50% vested Deferral: 0 Match: 5,000 PS: 5,000 Total: 10,000; vested 5,000 Available loan: 2,500. But really zero because there is no money in a fully-vested source. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
Bird Posted December 12, 2019 Share Posted December 12, 2019 17 hours ago, BG5150 said: It wouldn't be a BRF? Some people have access to more sources for a loan than others. I sure hope not because we do it all the time, and our document allows it. It's not like it's a random thing that's happening, or employer discretion in deciding who has deferral money - that is determined by the participant. 17 hours ago, BG5150 said: But really zero because there is no money in a fully-vested source. Right and so be it. And that's specifically why we would restrict loans to employee money (deferrals and rollovers, typically): we are (or at least I am) old and cranky and don't like loans, and our clients don't typically want employees borrowing "their" (that is employER) money. Ed Snyder Link to comment Share on other sites More sharing options...
RatherBeGolfing Posted December 12, 2019 Share Posted December 12, 2019 15 minutes ago, Bird said: I sure hope not because we do it all the time, and our document allows it. It's not like it's a random thing that's happening, or employer discretion in deciding who has deferral money - that is determined by the participant. Same here. My current pre-approved document allows for loan source restrictions, as did my my prior pre-approved document. Both from big vendors that many of the folks on these boards use everyday. Bill Presson 1 Link to comment Share on other sites More sharing options...
BG5150 Posted December 12, 2019 Author Share Posted December 12, 2019 3 hours ago, Bird said: Right and so be it. And that's specifically why we would restrict loans to employee money (deferrals and rollovers, typically): we are (or at least I am) old and cranky and don't like loans, and our clients don't typically want employees borrowing "their" (that is employER) money. I think there are two things to consider: What sources are available to fund a loan and what sources determine the available amount of a loan. So, in my cases above, #1 would only have $5,000 available and #2 would have no loan available matter how much vested money is int he other sources? QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
Bird Posted December 12, 2019 Share Posted December 12, 2019 33 minutes ago, BG5150 said: So, in my cases above, #1 would only have $5,000 available and #2 would have no loan available matter how much vested money is int he other sources? No on #1. 50% of total vested balance (not the balance in the available sources) is the absolute loan limit, so the available loan for that participant is the lesser of the deferral source balance ($10K) or 50% of the total vested balance ($7500) so it is $7500. Yes to #2. No deferrals/no loan. Ed Snyder Link to comment Share on other sites More sharing options...
BG5150 Posted December 12, 2019 Author Share Posted December 12, 2019 So, if we are excluding sources, we still use the vested amounts in the verboten buckets to determine max match, and the balance in the available sources can further curtail that... QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
Bird Posted December 12, 2019 Share Posted December 12, 2019 6 minutes ago, BG5150 said: So, if we are excluding sources, we still use the vested amounts in the verboten buckets to determine max match*, and the balance in the available sources can further curtail that... Yes. *Assume you meant loan Ed Snyder Link to comment Share on other sites More sharing options...
BG5150 Posted December 12, 2019 Author Share Posted December 12, 2019 I did mean loans. Thanks. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
Luke Bailey Posted December 12, 2019 Share Posted December 12, 2019 Unless the loan is $10,000 or less, Code sec. 72(p)(2)(A)(ii) says that the loan cannot exceed 50% of vested account balance. DOL reg. sec. 1.408b-1(f)(2) just says don't exceed 50% of vested balance unless you have security other than participant's account. So you have to restrict loan to only a portion of vested amount. Luke Bailey Senior Counsel Clark Hill PLC 214-651-4572 (O) | LBailey@clarkhill.com 2600 Dallas Parkway Suite 600 Frisco, TX 75034 Link to comment Share on other sites More sharing options...
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