Plan Termination/Merger

[Guest mjr]

Fully vested participant takes out DB plan loan, but ceases to make payments upon termination of employment. DB terminates shortly thereafter and merges with PS. Participant was told at the time that the outstanding loan would be deducted from the balance before the transfer. However, participant later learns that the defaulted loan was transferred to PS and continued to accrue interest until termination of PS 8 years later.

I heard that there is a rule or reg. somewhere that does not allow the transfer of a loan in default from one qualified plan to another. Is this correct, and if so, where can I find it?

[david rigby]

Probably look to terms of DB plan first. It should state what happens when an employee terminates employment. Can't "transfer defaulted loan" until you verify there was a defaulted loan. Not sure how you can do it anyway.