Maximum "minimum" loan amount

[Brian Gallagher]

Is there a threshold on how high a minimum loan amount can be? I thought it was $1000, but we have a plan that has $2500. So how high can a plan go for its minimum?

[pmacduff]

Brian - I researched this once and, although I never found anything in print, was told that you could in theory make the minimum any amount you want. BUT - if the majority of the plan participants would not be eligible for a loan in that minimum amount, you could have an availability issue. I think it is definately one of those grey areas. I deal with many smaller employers who would be discriminating if the minimum was anything over $1000 because no one but the highly comps could take a loan! Is it wrong? Maybe not but could be discriminatory. Hope this helps.

[Brian Gallagher]

i just read in a sample loan policy that $1000 is the max min to satisfy IRS safe harbor guidelines. i didn't see anything about that in the pension answer book.

any thoughts?

[FundeK]

To meet the "available ona reasonably equivalent basis" requirements , the plan can institute a minimum loan amount up to $1,000.

See DOL Reg. 2550.408b-1(b)(2). (copied and pasted below)

A participant loan program will not fail the requirement of paragraph (b)(1) of this section or §2550.408b-1© if the program establishes a minimum loan amount of up to $1,000, provided that the loans granted meet the requirements of §2550.408b-1(f) .

[MWeddell]

The regulations could be clearer on this point, but if a plan has a minimum participant loan amount > $1,000, then the participants who have a large enough account balance to obtain a loan must meet the nondiscriminatory classification test in order that the loan not be considered a discriminatory benefit, right, or feature.