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ERISA doesn't prohibit loans to participants who have terminated employment, but the plan may do so - simply because most employers require loan repayments via payroll deduction (which requires that you be employed) and don't want to mess with receiving a bunch of checks from former employees....

Boy, I remember dealing with this issue YEARS ago on the FIRST pension industry bulletin board system (I was one of the sysops; it was called PIX if anyone still remembers!). As I remember, we resolved that no one should bother paying the tax because of the penalty. The penalty is that the State of Florida will not enforce the loan; BFD! (big flying deal!). When has any ERISA plan loan had to be enforced in state court? Do you know of any ever? I think not. Why, because the loan is 100% collateralized by the participant's account, which is used to offset the loan upon default. "We don't need no steenking state court" (paraphrase of Alfonso Bedoya from The Treasure of the Sierra Madre). I think this issue is equivalent to "how many angels can dance on the head of a pin"; the answer is "who cares"!!!!! Larry.

My emphasis in bold. Wife must consent to the mother as beneficiary. I'm not sure I see the controversy

You really want to think through the practical issues before you change a plan to do this. How will this person pay the loan back? if by check do you have a system of tracking and controlling the checks so they aren't lost/stolen when received? What happens if the check bounces? How does this cash get transmitted to the trust? Do you really want to spend all this time and energy for a former employee? I have seen exactly one plan that did this and they valued their former employees. It was a very successful management consulting company. They treated their alumni very well becasue they often times became members of upper management of companies. This give this consulting company an "in" to generating new business. Otherwise I have never seen anyone think it is worth it.

This is really a question for you HR department and/or the recordkeeper that handles your plan. Many (most?) recordkeepers don't accept partial payments because their systems don't easily track the change in principle/interest that occurs when that happens. Some allow for partial payments in an exact multiple of your payment amount - but all that does is actually advance you x number of payments on your amortization schedule. Others may be able to handle partial payments. I think if you want flexibility, you best option is to secure the funds elsewhere and pay off your plan loan in its entirety.

Unless he adds "...unless my wife is willing to waive her rights and let you be beneficiary." Then he can start a whole new sh*tstorm.

Almost definitely, the plan language made the spouse the beneficiary upon marriage. Of course, the plan document needs to be reviewed, but based on your comments, I'd bet that's what it does. If the spouse has NOT waived her rights under this plan, then she is the beneficiary REGARDLESS of what a beneficiary designation says. It would be the same as if he filled out a new beneficiary designation listing the mother without the spouse's written consent. While Peter's commentary is certainly correct, I'm not sure you have to look outside the plan document which appears to say the spouse is the beneficiary unless she waives her rights. No waiver; no mother! Larry.

Just considered it; no, it does not constitute a claim.