Loan Repayments

[Guest basilb]

Has anyone looked at this or is anyone willing to hazard a guess?

We have a participant on a leave of absence who wants us to suspend his 401(k) loan repayments. He is receiving worker's comp payments from his employer, and the worker's comp payments are more than the loan installment payment. So far, his loan installment payments have been deducted from his worker's comp checks.

The regs say that you can suspend repayments where a leave of absence is either:

(1) without pay from the employer, or

(2) with pay, but only if the pay is less than the amount of the loan's installment payment.

Does a worker's comp payment from the employer (or from an insurance company on the employer's behalf, for that matter) count as "pay from the employer" that a loan payment has to be deducted from? How about a self-funded disability plan's income replacement payment (not the case here, just curious about what y'all's thoughts might be)? I've looked around a bit and haven't found any specific guidance on what exactly constitutes "pay from the employer", although it seems like this would be a common question.

[JanetM]

Thought you could suspend the loan payments if employee was on qualified leave of absense. They just have to payoff within five year period.

I have never seen the reg you quoted, what is the cite?

[Guest basilb]

It's Reg Section 1.72(p)-1, Q&A 9. It does say that the participant still has to repay the loan within the original five-year period and gives a couple of examples - either you can reamortize the loan payments or keep the payments at the same level and have a balloon payment at the end.