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the concept 'on the date the loan was made' is from the Code. Code Section 72(p)(2)(A) does not exceed the lesser of— (i) $50,000, reduced by the excess (if any) of— (I) the highest outstanding balance of loans from the plan during the 1-year period ending on the day before the date on which such loan was made, over (II) the outstanding balance of loans from the plan on the date on which such loan was made, or (ii) the greater of (I) one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan, or (II) $10,000. now, lets suppose that rule didn't apply. so last week the person took a loan. Friday June 24 the stock market dropped 546 points so no longer at 1/2 the amount, so you start ineligible loan procedures. but Tues and Wed the market has gone up over 500 points so now he has over 1/2 so now it is ok. so do you say the loan was bad or good or when would you say it ineligible because it is too much?

There really hasn't been any guidance issued. All they've said is, "under current guidance, a reasonable, good faith interpretation standard applies with respect to governments. See Notice 89-23, 1989-1 C.B. 654, and Notice 96-64, 1996-2 C.B. 229, see §601.601(d)(2) of this chapter." Announcement 2011-79. (The announcement deals specifically with Indian Tribal governments, but seems to be applicable to governmental plans generally.) Personally, I'd be a bit wary of treating a city and a board of education for that city as separate employers, and thus treating the teacher as having had a termination of employment. But you know your client's risk tolerance better than I do.

Thanks Kevin. Sigh..that was what I was coming around to after thinking about it following the posting. Truly, it doesn't matter to me in this case, since prior TPA is responsible for the filing, but I was thinking about it in case it ever comes up with us. What a ridiculous waste of effort. This plan wasn't subject to audit, but I haven't looked into whether an audit would be required for such a 1-day plan year in the event it ever comes up on a plan subject to audit. And I probably won't bother, since (hopefully) by the time such a real life situation occurs, I'll either be retired or they will have changed the rules! Thanks again.

1.414(v)-1(d)(3)(I) Catch-up contributions with respect for the current year are not taken into account for purposes of section 416. however, catch-up contributions for prior years are taken into account for purposes of section 416. thus, catch up contributions for prior years are included in the account balances that are used in determining whether the plan is top-heavy under section 416. so, on the one hand, you say "Yes based on account balances included prior catch up contributions the plan is top heavy. Now, how much did the HCE receive during the year? nothing because it is all catch up