Participant Loan Age Limit

[austin3515]

I had an interesting question from a client:

Is there any rule prohibitting a loan to a participant who is 63 (only 2 years from Normal Retirement), that will not be repaid in a time frame that can reasonably be expected to be repaid. (for example, over a period of 20 years, long after the employee will retire).

[R. Butler]

This thread may help.

http://www.benefitslink.com/boards/index.p...t=16501&hl=loan

Why would you have a 20 year loan? Generally the maximum loan period is 5 years; the only exception is a home loan.

[Guest Pensions in Paradise]

I would be very hesitant to put any type of age restriction on loans. I haven't researched the issue, it's just my conservative view.

Is the client concerned about maintaining the loan after the participant retires? If so, the plan can provide that loans default upon termination of employment.

[R. Butler]

Oops. That didn't work. Let me try again.

http://www.benefitslink.com/boards/index.p...t=16501&hl=loan

If this doesn't work. The thread is called loans for the elderly. Just type in Loan for your search, narrow the search by using my user name and by searching Distrib. & Loans forum.

[Erik Read]

Doesn't the loan policy state that the "investment committe" must determine if the loan is a worthy investment? As a fiduciary - I'd say I have an issue with repayment if the individual can up and retire in two years, but want's a 20 year term - loan request denied.

Other opinions?

[WDIK]

Is a "worthy investment" the same for a plan with individually directed investments where the loan will be repaid to the participant's account as it is for a plan where all accounts would share in the loan interest?

I would probably go forward in the former case, but I would be more wary in the latter.

[Guest Pensions in Paradise]

ERead - so you would deny all loan requests, since any employee can up and quit any time they want? I don't see how someone reaching normal retirement age in two years should affect a fiduciary's decision on issuing a loan.

[mbozek]

Any limitation on the rights of an employee 40 or older under a benefit plan which is not imposed on younger employees is age discrimination. See 29 USC 620 et seq. Since an employee can continue to work after NRA there is no presumption that the loan cannot be paid off.

[austin3515]

I also found in the "available on a resonablyu equivalent basis" definition of the DOL regs that you should employ the same criteria as a commerical lender.

The Equal Opportunity Crecit Act or soemthing like that prohibits not providing loans on the basis of age.

So there are two laws which I think are being violated by even considering age here.