Plan Loans Maximum Allowed

[jquazza]

This doesn't look right, but I cannot find a flaw in the logic, see if you agree with this:

A participant has a 40k 12-months highest outstanding balance (HOB) on his loan.

His current Balance (CB) is 10k.

Under 72(p), he is allowed to borrow 10k (50 (max allowed)-(40(HOB) -10 (CB))-10(CB))=10k.

The next day, his 12-months HOB is still 40k, so he can borrow another 10k (50-(40-20)-20)=10k.

So, I can't let him take 20k today, but I can let him take 10k today and 10k tomorrow. Am I missing something?

[wmyer]

The next day, his HOB is 50K, not 40K, because he has just taken out an additional 10K. So his amount available to borrow would be $0. Why do you say his HOB is still 40K the next day?

[FundeK]

Here is the worksheet I use when determining max available. I would work through it for your scenario, but I don't know the total vested account balance.

Part I

1)Maximum statutory loan amount

2)Highest outstanding loan balance for 12 months

3)Current outstanding loan balance (let's say it is $40,000)

4)Subtract 3 from 2

5)Reduce maximum statutory limit (subtract 4 from 1)

Part II

6)50% of Participant’s vested balance ($40K loan + $10K CB)

Part III New Loan Limit

7)Lesser of 5 or 6

8)Current outstanding loan balance

Maximum new loan amount ( subtract 8 from 7)

[GBurns]

(50 -(40-10) -10)= 10K

The next day should be:

(50-(50-20) -20) = 0K

[jquazza]

Why is everyone saying the highest outstanding balance is 50k? Over the past 12 months, the HOB was 40k. The current balance of the loan is 10k, if I take an additional 10k, that puts the current balance at 20k, but the highest over the past 12 months is still 40k!

[jquazza]

Here is the worksheet I use when determining max available. I would work through it for your scenario, but I don't know the total vested account balance.

Part I

1)Maximum statutory loan amount

2)Highest outstanding loan balance for 12 months

3)Current outstanding loan balance (let's say it is $40,000)

4)Subtract 3 from 2

5)Reduce maximum statutory limit (subtract 4 from 1)

Part II

6)50% of Participant’s vested balance ($40K loan + $10K CB)

Part III New Loan Limit

7)Lesser of 5 or 6

8)Current outstanding loan balance

Maximum new loan amount ( subtract 8 from 7)

That’s the exact formula I am using.

[GBurns]

If on Monday the HOB is $10K and on Monday afternoon you give this new $10K loan, does that not make the new HOB on Tuesday morning $40 +10= $50K?

This is not my area of expertise but I am using the arithmetic and formula that you gave in the OP which seems consistent with the Worksheet.

Why do you stay at $40K after the new $10K loan? Where did the new $10K go?

[jquazza]

The 10k he just took increase his current balance to 20k. That doesn't change the fact that his highest outstanding balance during the past 12 months is still 40k. His current balance was only 10k before the new loan. 10+10=20k that's his new current balance, that is still way under the 40K highest outstanding balance over the past 12 months.

[Guest 401der]

The HOB for the past 12 months should be the combined HOB of all loans - $40,000 + $10,000.

[JanetM]

You don't add the balances for HOB. Look back at total of all loans outstanding for the last 365 days and see what day had the highest balance. That is the number you use to see what amount is available.

Jquazza is saying that six months ago the HOB for loan was 40K, now the balance on that loan is 10K. Today you look at 40K as HOB. There is 10K available for loan. new loan is taken current (for both loans) balance is 20K). The HOB for all loans during the past year is 40K.

[GBurns]

If on Tuesday morning after the first $10K loan you do as you say and "Look back at total of all loans outstanding for the last 365 days and see what day had the highest balance" that day should be the Monday late afternoon and would include the new $10K thereby being $50K. Otherwise where is the $10K loan?

Why would that first $10K loan not increase the total of all loans outstanding since it is now outstanding once it is made and it was made within the last 365 days rolling or otherwise.

So the whole issue is whether or not a new loan increases the total of all outstanding loans. I cannot see why not and I know if I looked up the actual entries made in a ledger it woud have HOB $50K. I cannot see bookkeeping entries ending up otherwise.

[Blinky the 3-eyed Fish]

This piqued my curiousity so I did a little digging.

I think the issue can be summarized as to whether or not you take the total outstanding loan balance at any one time within the last 12 months or if you take the highest outstanding balance of each loan within the last 12 months.

The first method would yield a result of $40,000 in this example, leaving a $10,000 available loan and 3 subsequent available loans at $10,000 a pop. The second method would yield a result of $50,000 and no available loans after the first $10,000 one issued.

Sal has a good discussion on page 7.187 of the 2004 ERISA Outline Book and espouses that the literal reading of the stature is the first method. That can't be the intent of the statute, but intent schmintent.

[GBurns]

Using your first example, At what stage would this person stop being able to get further loans? Or How many further loans would be allowed?

[jsb]

How many loans does the plan allow? If unlimited, looks like you could make subsequent loans until you reach the statutory max outstanding. If only 2 loans are allowed, like our plan, once you take the new $10K loan, you're done until 15 days after you pay off at least one of the loans.

[Guest dbvail]

Odd though it seems, mechanically it seems to work. I recall there was a two loan per calendar year limit in the proposed regs. but that did not make the final. The issue of treating each loan separately or aggregating them is not clearly stated in our reference material, however, our VS doc refers to 'outstanding balance of loans during the ....'. It in no way implies that these are taken separatley. So for now, I'll aggregate and enjoy the two loan-two step to get the max. Unless of course.....

[jquazza]

Blinky, you nailed it, and when I look at the code, nothing tells me to segregate the loans. Intent, schmintent indeed!

jsb, no limit on # loans or timing restrictions.