Calculating maximum loan limit in a multi-plan, multi-loan environment

[Guest Tim Cahoon]

In regards to calculating the maximum loan limit (IRC 72(p)) when there are multiple savings plans and more than one loan offered in each plan, after finding the adjusted $50,000 limit (Part 1) and finding the maximum vested balance (Part 2), would the maximum loan amount be reduced by outstanding loan balances in the particular plan where the loan request is being applied or reduced by outstanding loan balances across all plans? So Line 7 below is where I have issue (all plans vs specific plan at this point in the calculation). I will illustrate with the following example for clarification:

3 loans allowed in each plan not to exceed 72(p) limits.

PART 1: FIND THE ADJUSTED $50,000 LIMIT

1.) Maximum amount (IRC Section 72(p)) $50,000

2a.) Highest outstanding loan balance(s)

during the last 12 months; this includes

all outstanding loan balances in all of

XYZ Corporation's savings plans:

Salaried 401(k) Plan:

Loan #01 $1,000

Loan #02 $2,000

Loan #03 $3,000

Supplemental Savings Plan/SSRP (After-Tax EE Contributions with annual 2% ER

Contribution):

Loan #01 $4,000

Loan #02 $5,000

Loan #03 $6,000

Highest outstanding loan balances

across all plans: $21,000

2b.) Less current outstanding loan balances

across all XYZ Corporation's savings plans:

Salaried 401(k) Plan:

Loan #01 $Paid Off

Loan #02 $ 300

Loan #03 $1,500

SSRP

Loan #01 $2,500

Loan #02 $Paid off

Loan #03 $5,000

Current outstanding loan balances

across all plans: $9,300

2c.) Highest outstanding loan balances minus

current outstanding loan balamces across

all savings plans: $11,700

3.) Reduced maximum statutory loan amount

subtract Line 2c from Line 1: $38,300

PART 2: FIND THE MAXIMUM VESTED BALANCE

4.) Participant's vested account balance (which

includes outstanding loan amount(s) in the

XYZ Corporation Salaried 401(k) Plan): $85,000

5.) Multiply by 50% which results in: $42,500

MAXIMUM LOAN AMOUNT

6.) Enter the LESSER of Line 3 or Line 5 $38,300

7.) Reduced by the participant's current

outstanding loan balance(s):

Salaried 401(k):

Loan #01 $Paid Off

Loan #02 $ 300

Loan #03 $1,500

SSRP:

Loan #01 $2,500

Loan #02 $Paid off

Loan #03 $5,000

Current outstanding loan balances across

all plans: $ 9,300

8.) Subtract Line 7 from Line 6 (maximum

amount available for loan): $29,000

Comments would be appreciated. Thanks.

Tim Cahoon

[R. Butler]

IRC 72(p)(2)(D) provides that for purposes of applying the loan limits, all qualified plans maintained by the same employer or by a member of a controlled group or affiliated service group are treated as one plan.

[Bob R]

Your numbers appear to be correct. But, I didn't actually use a calculator to double check your figures.

My main reason for responding is just to point out a potential problem. As R. Butler pointed out (and which you applied) all plans are treated as one for purposes of 72(p). But, I have not been able to find a similar provision in ERISA. What this means is that even though the maximum loan may be $29,000 to avoid taxation, the ERISA requirement that no more than 50% of the vested interest in a plan can be used as collateral for the loan is applied separately to each plan.

[Guest Paula MacKenzie]

In step 4 I notice that the vested account balance includes the outstanding loan amount in only one of the plans. Does that mean that the vested account balance applies only to the account in the plan from which the loan will be issued?