We have a plan that is going to allow participants to rollover their loans from their previous employer into this plan. What documentation needs to be done?

[Guest mmc]

This is a start up plan recognizing service with another entity. Most of the employees were participants in the plan of the other entity and there are a substantial number of loans involved in these rollovers.

The promissory note is an obligation between the other qualified plan and the participant. Must we document these loans as an obligation between the recipient plan and the participant?

What other documentation is necessary?

[david rigby]

How does one rollover a loan? Is this really a plan merger?

[mbozek]

the loan note is a plan asset which is transferred via a direct rollover to the new plan like any other asset.

[QDROphile]

You might want to get a payroll deduction authorization in advance of the rollover so you can keep the payments on schedule. You want to be sure no loans are in default or that defaults will be cured before the applicable period for cure.

[david rigby]

You also might want to check plan provisions, of both plans.

[mbozek]

A payroll deduction authorization may not be requied if the employees are transferred pursuant to an asset sale and the purchase agreement contains recitals that all previous contracts and agreements with the prior employer will remain in effect. Check with counsel.

[RCK]

We did it once for a location that was being sold (it was more complicated than that, but let's just call it a sale) to someone else. We created a special election form where they clearly authorized the continuation of payroll deductions from their new payroll, as well as a reamortization of the deductions if frequency of payment changed or if any payments were missed.

We also very tightly defined the window for doing this--it was about three weeks right before the transaction date.

If I'd been the receiving plan, I'd have wanted a copy of the promissory note, but they did not ask. As I recall, nearly 1/2 of the partipants with a loan elected to roll it.

And pax is of course right--both plans have to allow this type of transaction.