loans

[jpod]

Tax-exempt employer maintains 403(B) program funded solely by employee elective contributions. Same employer also maintains 401(a) defined contribution plan.

Loans are NOT PERMITTEED from the 401(a) defined contribution plan.

QUESTION: In determining maximum loan an employee can take from the 403(B), do you agggregate 403(B) account balance with vested 401(a) account balance for purposes of determining the 50% limit?

I know what 72(p) says. Any citations beyond the statute would be appreciated.

[Guest STLGiant]

You may want to determine the funding vehicle for the participant requesting the loan, as loans from an annuity are o.k.--assuming there is a loan policy in the annuity contract, but loans from a custodial account are an issue, since there is no loans from custodial accounts...

[mbozek]

STL: Where did you get the idea that there are no loans available in custodial acounts??? Many 403(B) mutual fund providers have made loans available to participants.

[jpod]

I think the so-called "issue" has to do with the fact that the statute permits investments solely in shares of regulated investment companies, and, therefore, one could imagine that a loan is not a permitted investment.

Fortunately, the IRS has been ruling favorably for 15 years on this conundrum, so unless one is trying to convince a client to pay professional fees to secure another cookie-cutter ruling from IRS, there is no real "issue."

So, is anybody interested in my original question?

[Ellie Lowder]

Yes - you are permitted, under the Code, to aggregate the values of both plans (since they are sponsored by the same employer) to determine loan eligibility. Some loan provisions, however, will not permit borrowing on any value not held by the provider from whom the loan is taken. I believe only a few loan provisions DO permit other values to be considered.

[mbozek]

A participant may borrow on amts in a custodial account by applying for a loan and having the the custodian sell the shares and then signing a note obligating the participant to repay the loan proceeds for the sale to a trustee who is acting on behalf of the plan. As the loan is repaid under the trust agreement the funds are deposited in the participants account.