Guest rocnrols2 Posted January 8, 2003 Posted January 8, 2003 If a plan document limits loans for purposes other then the acquisition of the participant's principal residence to 5 years, can the plan employ a rule of convenience in determining when to default the loan? For example, assume a participant takes out a loan on April 15, 1998. Dur to the failure to timely start the loan repayments, the participant is still making repayments on April 16, 2003. Can the plan look at all particiapnts who have exceeded the 5-year limit as of the first day of the following month? (May 1, 2003 in this case). Why or why not?
ccassetty Posted January 8, 2003 Posted January 8, 2003 You stated the reason at the beginning of your question. The loan must be paid off within 5 years. This isn't just a document issue, this is the requirement in the code and regulations. The fact that several other participants have also been allowed to exceed 5 years doesn't make it right or have anything to do with it. I would say that the remaining balance of the loan as of April 15, 2003 becomes taxable immediately, since the 5 year deadline would be April 14, 2003. See Q & A 4 of 1.72(p)-1. There is nothing that I'm aware of that allows participant loans to be defaulted on a group basis for administrative ease. However, I'm always willing to learn. Carolyn
E as in ERISA Posted January 9, 2003 Posted January 9, 2003 For loans issued after the applicable date of 72(p) regs, under Q. 4 the entire loan might be taxable at the time of issuance: "If the terms of the loan do not require repayments that satisfy the repayment term requirement of section 72(p)(2)(B)..., the entire amount of the loan is a deemed distribution under section 72(p) at the time the loan is made."
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