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I would strongly recommend the amendment to be done and clear. This makes it clear a type of loan is allowed and why others aren't. It also makes it clear that just these and not other rollover loans are allowed. In short I see a well thought out amendment stopping future debates and charges of "but you allowed this rollover you have to accept these now". Or why does Joe have a 401(k) loan and I can't have one?

You could probably allow it. The only issue I could see is if the existing loans are all or substantially all to highly compensated employees but you've stated that isn't the case. You might want to document the administrative procedures and even go so far as to adopt an amendment something to the effect of "Due to the acquisition of the XYZ company, the ABC will accept rollovers of loans in-kind from the participants of XYZ company who rollover their accounts to the ABC plan and will allow the loans to be repaid under their original term in the XYZ plan. New loans will still not be offered in the ABC Plan" Or something along those lines. This is assuming ABC company wants the head ache of administering rolled in loans form XYZ.

Yes, a fiduciary is making a decision when they select defaults for an auto enrollment program, BUT 1) they have legislation that provides guidance and safe harbors; 2) they have regulations that define a QDIA for purposes of a safe harbor for THAT decisions; and 3) they have the BODY OF EXPERIENCE of other PRUDENT EXPERTS who have done it - therefore fulfilling the "what other experts do" part of prudence. I have NEVER seen one make a determination that "you" go Roth and "you" go pre-tax, nor do I see ANY evidence that the one factor they have selected is indeed a KEY factor. Experts have been debating Roth and the decision making process for as long as Roth has been available, and I see NO consistency in approach. Not what "other" prudent experts would do....

Yes the old employer plan withheld taxes. Old ER plan recordkeeper said they could go get the taxes back from the IRS should the ttee decide they wanted to redo the distribution request as a rollover. Since 1099's havent been sent, recordkeeper is saying they would void the first direct distribution check, recall the taxes from the IRS, issue a new rollover check payable to new ER plan, and issue 1099 in 2017 showing as rollover instead of direct distribution.

How can the Plan dictate employment policy?

Again, my position is that the fiduciary IS choosing anyway, because they are choosing between Roth and Pre-Tax. You're assuming that if they "just use pre-tax" that they did not make a choice, but they did.

Being "allowed" and being "prudent" are two different things. I have no problem with the FIDUCIARY decision being made by a plan fiduciary (just as having a plan fiduciary making all investment decisions and not allowing participant direction is "allowed.") The question still remains as to WHY a fiduciary would want to make that decision? The way I look at it is, if you take into consideration ONE fact or factor, explain to me why you chose THAT particular fact or factor in making your decision, but chose NOT to take into consideration x, y & z facts or factors in making that decision? It's the distinguishing between two groups on the basis of ONE factor that causes me concern - and will be the crux of the fiduciary's defense when sued. Now one could argue that TDF's do the same thing - BUT 1) the industry has recognized that as "more" prudent than virtually all other investment options; 2) the options glide path ensure that the investments change when the one factor considered changes; and 3) there is safety in numbers - prudence is determined by what OTHER experts would do, and many, many other experts use TDF's. I am aware of none that actually make a "tax" decision for employees.

I see your point, but in this case it is simply impossible for the PA to know all surrounding facts and circumstances. For that reason alone, I would never advise a PA to make this type of call on behalf of the participants. I just don't see how making this type of decision based on some partial facts known to the PA can be prudent.

How would it work on the record keeping system? How will it know who is slated to make more than $45k? Is it an annualized figure? What if I'm supposed to make $60 this year, enter the plan on July 1, but I get fired in September after making only $40k? What happens from year-to-year, if people go above and below the waterline? I make $42k this year and I'm in Roth at 3%. Next year I make $46k and I'm now 4% in pre-tax? Or does it all stem from my initial auto enroll type?