401k Loans

[Guest planadmin101]

Couple of questions concerning 401k loans and terminated employees.

1. Can a plan administrator allow a former employee to continue paying on his/her loan after termination?

2. If the answer to question 1 is no, is there an amount of time the employer must give the terminated employee to pay the loan back? Is the Plan administrator required to notify the terminated employee that the loan is going to be "deamed' a distribution?

Thannks.

[QDROphile]

Yes. but it would be a good idea for the plan document or a written loan policy to cover the issues. Among other things, you need to know what the acceptable payment arrangements will be, what happens to the rest of the account (for example, may the remainder of the account be distributed while only the unpaid loan balance remains?), when the account will be distributed upon default and a bunch of other things you won't think of until they actually happen.

I assume that you assume that the opportunity will be available to everyone.

Terminology lesson. When a plan loan is in default and the amount is distributable (for example, because of termiation of employment), the distribution is not a deemed distribution. It is an actual distribution, often called an "offset distribution" because the loan distribution offsets the loan obligation (or vice versa).