Loan repayment period

[Guest phyphy]

Although 5 years is the maximum time period for repayment of a participant loan (other than for purchase of a residence), can the length of time be shortened? We have participants who choose the five year option for loans as small as $1,000, resulting in 24, 26, or even 52 very small payments over the maximum loan period. Can we limit the repayment to, for instance, 18 months for each $1,000 loan amount, with a maximum of five years?

Thanks!

[WDIK]

The maximum repayment period is five years.

If the plan document and loan policy stipulate (in a nondiscriminatory manner), the repayment period may be shorter than five years.

[Mike Preston]

How are you going to make it non-discriminatory? It seems like the purpose is to disuade smaller loans. Those that would tend to apply for smaller loans are the NHCE's.

IMO, unless you make the payment period the option of the participant, if the minimum loan is $1,000 (as decreed by the DOL) I think you have introduced something which is definitely discriminatory.

Of course, you could prove me wrong by having a history of $1,000 loans to HCE's (which would now be forced into a short amortization period) and no loans of that small to NHCE's. I won't hold my breath for that one!