Modifying Loan Policy

[Randy Watson]

Would modifying a participant loan policy be a "cut back" if the cure period for making up a missed payment is reduced? The 411(d)(6) regs state that the availablility of a loan is not a protected benefit. Any thoughts?

[Belgarath]

As long as the reduction (or elimination) of the cure period is prospective only, then I see no problem. But I don't think you can do it for existing loans.

[Randy Watson]

The current loan policy use to have a cure period that required payment by the end of the amortization period. The loan regulations state that a cure period cannot continue beyond the last day of the calendar 1/4 following the calendar 1/4 in which the payment was due. What if the purpose of the modification is to comply with the regulations (i.e., reducing the cure period so it complies with the regs)...do you think that it's that still a cutback?

[QDROphile]

The regulations deal only with tax consequences, maybe some prohibited transaction implications. If the longer "cure period" (whatver is meant by that) is a contract right within the loan terms, you cannot unilaterally change it unless the terms of the loan allow you to do so. Regardless of the contractual cure period, taxes happen according to the tax rules. The regulations allow for the possibility of taxation because of missed payments and then subsequent repayment of the loan.