Participant loans in DB plan

[Guest lisbetf]

I have a guy who wants to set up a defined benefit plan for himself, contribute to it, and immediately turn around and take a loan out from the plan.

Is this legal?

How do loans from DB plans work?

[mwyatt]

Same as in DC plans (i.e., capped to lesser of 50k and 50% of vested account balance - in this case present value of vested accrued benefit). You will need to focus on this to determine how much can be pulled out as loan. Repayment terms are identical.

[AndyH]

Except, as I understand it, the plan administrator cannot foreclose on it without the occurence of a distributable event, because that would be tantamount to a prohibited in-service distribution.

This is why loans in DB plans are rare. The contingency rules are messy.

[Guest Happy Actuary]

I believe that the prohibition against foreclosing < a distributable event also applies to 401K money.