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Read the plan document and the loan promissory note very carefully. There can be a difference between being eligible to take out a new loan while on medical leave versus being able to suspend repayments of an existing loan due to going out on medical leave. This difference may be buried in provisions that say there has to be a reasonable expectation at the time the new loan is taken that the loan will be repaid through payroll deductions. How medical leave plan works also may factor into the decision. Is the participant while on leave receiving pay from the company, a short term leave plan or a long term leave plan, and is any of this considered plan compensation? It may be unlikely but it may be possible for the source of these payments be a factor to consider. Some plan provisions may require a participant to be unable to make the loan repayments in order to qualify for the suspension. There also is the issue whether, by permitting this loan, the plan sponsor is creating a precedent that other participants who are on other types of leave could use to take out new loans. It also would be helpful to clarify the role of the participant versus role of the plan sponsor in invoking the suspension. It would seem the plan would say whether the participant medical lease has the right to suspend repayments, and the plan sponsor just needs to administer the plan's loan provisions.

I have not seen a situation like the one Lou S. describes. But that’s because plans I work with use a recordkeeper’s nondiscretionary computer-based procedure to approve or deny a claim for a participant loan. A participant’s request either is in good order with the rules the plan’s administrator instructed the recordkeeper to apply, or is NIGO and denied. There would be no human discretion, and the computer would lack information about a future leave. (The loan-application form has the claimant state every fact and every promise needed to follow the plan’s loan provision and procedure, and state everything under penalties of perjury.) If I were the human deciding for a plan’s administrator (and assuming I had caused the plan’s sponsor to revise the plan’s governing documents and written procedures to my satisfaction before I hypothetically consented to serve), I would not deny an otherwise sufficient claim for a participant loan merely because the participant will soon be on an approved leave if the administrator lacks knowledge that (i) the participant does not intend to repay the loan, or (ii) the participant won’t return to work soon enough, or her pay won’t be enough, to reamortize and repay the loan as the I.R.C. § 72(p) rule calls for. I recognize that claims procedures I’m used to can take on extra difficulties when a plan’s administrator (often impractical to separate from the employer) has too much information about the participant. This is not advice to anyone.

Mojo - I speculate that such a provision wasn't mandated in the 403(b) document(s) due to the fact that there are about a gazillion existing individual annuity contracts issued under state laws/regulations in these plans, with some wildly different provisions, and it would be pretty nearly impossible to make this workable. Just a random thought that crossed my mind.

I agree. But depending upon how one interprets things, I don't see this situation as excusing the borrower from her obligation? I'm assuming the loan is secured by the account balance. There's a legally enforceable obligation to repay, and the level amortization requirement is overridden under Q&A-9. Peter, have you ever seen this come up, one way or the other? With what result/interpretation? Your objectivity in analysis of statutes/regulations/etc. is always unparalleled, but to put you on the spot here, (if you are willing), if you were a Plan Administrator, would you allow such a loan? If you'd rather not answer that, I fully understand! This is a matter of personal curiosity only, as I've never seen this, nor do I expect to ever see such a request. Thanks!!

I'm guessing that perhaps it is in an administrative procedures addendum, if your document has one? If it truly isn't addressed anywhere, I would just make sure they opt out again. No harm, no foul - even if it is hidden in the document so well that it is impossible to find, can't hurt to have them opt out again, even if isn't strictly necessary.

That a leave might delay repayments does not excuse the borrower from her obligation. [Treasury] 26 C.F.R. § 1.72(p)-1/Q&A-9 https://www.ecfr.gov/current/title-26/section-1.72(p)-1. Does the plan secure a participant loan with the participant’s account balance? [Labor] 29 C.F.R. § 2550.408b-1 https://www.ecfr.gov/current/title-29/section-2550.408b-1.

VAT would create a basis in the Plan. I'd ask for the 1099-R showing the non-taxable basis. I believe it would have been reported on Box 5. The distributions coming out are generally required to be pro-rated between basis and earnings.

The final rule was published September 16. The rule would become effective November 17. Whatever the Treasury might have said now has been said (or omitted). https://www.govinfo.gov/content/pkg/FR-2025-09-16/pdf/2025-17865.pdf There are differences between the proposed and final rules. The rule applies “with respect to contributions in taxable years beginning after December 31, 2026. However, see §§ 1.401(k)–1(f)(5)(iii), 1.414(v)–1(i)(2), and 1.414(v)–2(e)(2) and the Applicability Dates section later in [the final rulemaking’s] preamble for additional details regarding applicability dates.” “Prior to the applicability date of the final regulations, a reasonable, good[-]faith interpretation standard applies with respect to the statutory provisions reflected in the final regulations.” Some administrators might find it simpler to start the “practices and procedures” the final rule calls for with January 1, 2026.