Loans in a 457 plan?

[Guest Brian Cox]

ICMA, one of the largest 457 plan vendors, allows loans in it's plan if the employer requests they be made available.

Other carriers say that loans are not allowed.

What's the story? Are loans allowed by law in governmental 457 plans or not?

[Guest Harvey Carruth]

Quoting the Answer to Q 15:37 from the Second Edition of the 457 Answer Book, published by Panel Publishers:

"Although no specific guidance has been provided by the IRS, the Conference Report on the SBJPA appears to permit loans to participants in a 457(g) plan (see Qs 2:38, 2:39, 2:86, 14.10)."

The Answer to Q 15:38 from the 2001 Supplement to the 457 Answer Book includes the following statement:

"On July 31, 2000, the IRS issued final loan regulations under Code Section 72(p). Although the preamble to the regulations does not specifically mention 457 plans, it appears that at least some of these regulations refer to eligible plans under Code Section 457(B)."

Finally, the Answer to Q 2:40 in the first reference above states: "Is a 457(g) plan trust required to permit loans?" The Answer begins:

"No. Loan provisions are permissive."

Hope this helps.

[Guest HighKing]

You quote the 457 Answer Book as stating that loans appear to available in 457 plans (something that I have agreed with for years and years); I wonder though if they address collateralizing the loan?

In a 403(B) or 401(k) plan the employee is allowed to assign his/her account as collateral for the loan to assure that repayment is made in the event of default without the account becoming taxable. 457 plans, however, cannot allow the employee to assign his/her benefit as collateral without making the deferrals available and thereby taxable, which defeats the whole purpose of the 457 plan, unless there is something that I have overlooked somewhere. Have you found something that discusses how an employee in a 457 can provide collateral for a plan loan, preferably the employee's account, without having the account become taxable since it was made available to the employee?