is this one loan or two??

[maverick]

Plan currently allows 1 outstanding loan. A division recently added to plan has approx 30 people deferring, and 17 outstanding loans. We're starting to see requests for "more money" (e.g., Joe owes 2,000 on loan #1, wants new loan #2 for 4,000, 2k used to pay off old loan, 2k to participant). We do not want to allow multiple loans. So... if loan 1 is paid off today, and loan 1 is effective today, are two loans in existence today? I've heard arguments both ways, and searched the past year's worth of threads on the loan/dist msg board with no success.

- He has enough money available to handle a 4k loan, even after reducing the avail loan amount by the highest balance in the past 12 months.

- I would make sure that the second loan is paid off before the final payment was due on loan #1.

I hate Mondays. Thanks. Maverick

[jaemmons]

According to the new loan regs, if the replacement loan is used to repay a prior loan and the new loan repayment period is beyond the original loan, you will be treated as having two outstanding loans for purposes of determining the maximum loan amount.

As long as the new loan does not exceed the max $ amount (taking into account both the old loan and new loan outstanding balance on date of request), is paid over a period, of no more than 5 years (generally), and is amortized over a level period, you would be able to repay the old loan with $2K of the new loan proceeds and carry only ONE loan on the books.

If you want to see a complete example, you may want to check out the new loan regulations Q&A 20.

[actuarysmith]

Be careful not to exceed the loan limits when you are granting this new (second) loan.

The max loan amount is the lessor of 50% of the vested balance or $50,000 reduced by

the maximum outstanding loan balance held..... etc.

This means that if the prior loan was close to the limit, even if it is paid back, there may not be room to allow another loan so soon..............

[QDROphile]

It is a mattter of interpretation or policy whether or not a plan will allow proceeds from a second loan to repay the first loan under a "one loan" restriction in the plan. Nothing compels the plan administrator to allow it. As noted above, there are compliance issues if the plan administrator does allow it.

[maverick]

Thanks for your responses. I'm having trouble understanding the "reduced by the highest outstanding loan balance during the immediately preceding 12 month period" mentioned by actuarysmith. Does this rule only apply to the $50,000 max loan?? I found and reviewed Sal's analysis of the new loan regs; he makes no mention of this. In the instant case (I heard someone say that a long time ago), let's say his highest loan balance in the past 12 months was $2,400. Would the "reduced by the ..." rule apply? Thanks again.

Maverick

[actuarysmith]

It's the 50K max that is reduced.