Merger of PS & MP Plan -- Consent to plan loan

[Wessex]

My issue relates to whether spousal consent is required for a loan under the following circumstances:

A money purchase pension plan has been merged into a profit sharing plan (with or without a 401(k) feature). Separate accounts were established for the balances attributable to the money purchase pension plan; these accounts will be adjusted for earnings and losses. Assets attributable to the money purchase pension plan will not be used as security for a loan.

Section 401(a)(11)(B) and Q&A 5 of Section 1.401(a)-20 are clear that the J&S rules apply only to participants with the transferred assets and only to the transferred assets if there is separate accounting.

Section 417(a)(4) provides that "if section 401(a)(11) applies to a participant when part or all of the participant's accrued benefit is to be used as security for a loan, no portion of the participant's accrued benefit may be used as security for such loan unless" the spouse consents. Q&A-24 of Section 1.401(a)-20 contains similar language and also provides that "spousal consent is not required if the plan or the participant is not subject to section 401(a)(11) at the time the accrued benefit is used as security".

If a participant is obtaining a loan using only the non-money purchase plan assets as collateral for the loan, no spousal consent should be required because neither the plan nor the participant is subject to the J&S rules for the benefits being used as collateral.

I understand that Dick Wickersham has informally confirmed this approach.

Nonetheless, some persons are viewing the literal language of Section 417(a)(4) and Q&A-24 without the context of separate accounting approach for merged assets and concluding that no portion of the account can be used as security for a loan without spousal consent.

As a service provider, whichever interpretation is correct obviously has system implications as to whether loans can be processed in a "paperless" manner without spousal consent.

I am particularly interested in hearing the approach other service providers are taking, but all opinions are welcome!

[Guest b2kates]

It is our approach that all loans that utilize account balances as collateral require spousal consent. Paperlessly, we receive the request for the loan, but in processing we require both spousal signatures on the loan document.

We are not comfortable without a written loan agreement.