Proposed Loan and Multiple Loan

[Guest lforesz]

Hi,

I dont' recall that the July 2000 proposed loan regs on multiple loans were ever finalized. I seem to recall that until the regs are finalized, employers are supposed to make a good faith effort at compliance (presumubly by operating under the proposed regs).

We have a participant who has already received two loans within the calendar year (which is designated as the 12-month period) but wants a third loan. The client believes that since the regs were never finalized, it is okay to give him the loan.

I just wanted to get an idea of what others out their in the professsion are doing. Are you requiring employers to operate under the proposed regs? And what if the client says, just issue the loan and then 1099-R the participant. This seems like circumventing the regs and almost a prohibited transactions if the loan was never intended to be repaid.

Any thoughts?

Thanks for contributing.

Lori

[Brian Gallagher]

does the document or loan policy address the issue of the maximum # of loans outstanding?

what happened to the first two loans? paid off? defaulted? still in effect?

[2muchstress]

My understanding from the ASPA webcast presented by Cheryl Morgan a few months ago is that if a participant takes more than 2 loans in 12 months, then the third loan is treated and taxed as a distribution.

I would definately say that I don't believe you should allow for loan 3.

[R. Butler]

The client is correct. If the document doesn't put a limit on the number of loans, a participant can take more than 2 in a year.

I was at a seminar "live via satelite", sponsored by ALI-ABA. Dick Wickersham was one of the speakers. He indicated that regs would be finalized by the end of this month. He also indicated that the 2 loan limit would not be in the finalized regs.