QDRO and Participant Loan

[Guest Alley]

Assume a plan has received a QDRO which directs the distribution of $10,000 to the alternate payee. The participant has an outstanding participant loan. There is sufficient cash in the account balance to make the distribution. However, the distribution of $10,000 to the alternate payee would cause the participant's loan to exceed 50% of his remaining account balance, which would be a violation of the plan's loan policy.

Any thoughts?

I see that ERISA Opinion Letter 94-28A (7/21/94) permits a loan from the participant to the plan in this circumstance so that the payment to the alternate payee can be done, but what if the participant won't agree?

[FundeK]

Does the loan policy state that the loan may never exceed 50% of the participant's account balance, or does it state that at the time the loan is issued, no more than 50% of the account balance can be used as security for the loan? In my experience, we have issued a loan to a participant for 50% of his vested account balance, and then the participant has taken out a hardship for the remaing amount available. At this point, the outstanding loan balance exceeds 50% of the vested account balance, but when the loan was originated, it did not. Also, due to market fluctuations, you could have a participant with an outstanding loan that is more than 50% of the vested account balance.

I think you are fine and it probably does not violate the loan policy (Just my guess without reading the actual policy)

[maverick]

I agree with FundeK. We had a plan with 32 participants, of which 27 had outstanding loans!!!! Subsequent to receiving the loans, 2 or 3 also took hardships for 100% of the account balance (less loan).