Loan Rollover?

[Guest J Samuelson]

A client of ours is trying to entice an individual to come to work for them. She has a 401(k) plan with her current employer with a loan against it. Is it possible for the loan to be rolled over to the new employer? The new employer is willing to administer the loan and to pay any fees. Would we need to see the plan document and loan policy of the current employer to see what they do with loans upon termination of employment first? Any assistance would be appreciated.

[Dowist]

A loan can be rolled over just like any other asset. In order to administer the loan in the new plan, you'd have to review and have the loan agreements and procedures. The current procedures of the other plan may not allow it - most plans in my experience are set up so that payments are made through salary reduction and when a participant terminates employment, the procedures provide for acceleration of the loan.

Another issue arises for the plan that accepts the rollover - this becomes an administrative problem for it - it will have to get a new salary reduction election if payments are to be made by salary reduction and it will have to follow the other plan's loan agreement - also there are DOL rules that say that if you have a loan policy for anyone it has to be available to everyone - I'm not sure that you could continue the loan for this person and not make loans available to others - you'll have to review the ERISA regulations (ERISA 408 I believe).

Another alternative - and one that may be easier for everyone - would be for the new company to loan the new employee the money to pay off her loan so that she can roll cash. Then the loan would be between the company and the employee and you wouldn't have these plan issues.