Max Loan Amount

[Guest good2brich]

I just want to say that everyone has been so helpful, I just want to say thanks to all.

We have an employee with 10,500 in his psp account. He wants to take a loan. I thought the max loan was 50% of his account balance. However, our financial advisor says that its the greater of 50% of his account balance or 10,000 not to exceed 50,000.

Thanks.

[WDIK]

The plan document and/or loan policy can allow the $10,000 loan (even if it exceeds 50% of the vested account balance) although it would need to be secured by outside collateral to the extent it exceeds 50% of the vested account balance.

You should refer to your plan document and/or loan policy to determine the applicable loan provisions for your situation.

[pmacduff]

It depends on how the loan policy is written in the Plan; 50% of vested balance is pretty standard. But - in the "old" days you saw that a plan could allow the "greater of 50% of vested balance or $10,000...." definition that you cite, but the participant then needed to provide some type of collateral outside the Plan for the portion not secured by the account balance. I deal with mostly smaller employers and most wouldn't want a participant to have this option, so our loan policies do not include it and I have not seen it in many years. Check out your plan's loan policy & wording...hope this helps.

Sorry WDIK beat me to the punch!!!!!!

[jquazza]

and who want to deal with outside collateral...

[WDIK]

Sorry WDIK beat me to the punch!!!!!!

...but I like your response better.

[Guest good2brich]

thanks again.

[E as in ERISA]

The legal basis for the above answer:

Internal Revenue Code 72(p) prescribes a limit on the amount of a loan equal to the lesser of (a) $50,000 reduced by…., or (b) the greater of (i) half of the account balance or (ii) $10,000.

However, ERISA 408(b) requires that loans must adequately secured. And the Labor regulations provide that only 50% of the participant’s account balance can be used for security.

If there is no security other than the account balance, then the ERISA "adequate security" rules will trump the IRC loan limit.