Can a change in loan policy or plan document loan provisions apply to

[John A]

An employer would like to change the loan provisions in their plan document to force terminated participants to pay back any outstanding loans within 30 days of termination of employment. Right now, the plan document provides that participants who have terminated employment with outstanding loans may continue to make loan payments. It seems clear that this change can be made on a prospective basis. Can the change apply to 1) current terminated participants who are making payments on their loans, 2) current active participants who have outstanding loans? So if a current active participant with an outstanding loan terminated employment next year, could that participant be forced to repay the loan under the change in the plan document loan provisions?

[Guest]

Plan loans also have to comply with truth in lending laws (regulation Z) and I don't think this is a permissible practice.

[rcline46]

A loan is a contract under state law. You cannot unilaterally change a contract.

Reg Z only applies if 24 or more loans are granted in a year so it may or may not apply.

[M R Bernardin]

Also look at the 411(d)(6) regulations, which may be helpful. I think what you need, to protect yourself in the future, is to provide in the loan policy and each promissory note that the loan is subject to the terms of the plan and the loan policy and that, to the extent either of those documents change, the participant will be bound by those changes. Absent some sort of language like that, it is difficult to argue that the loan terms can be unilaterally changed. I would like to understand the references to the Reg Z requirements. What is the concern there?

[Kirk Maldonado]

An interesting question is whether state law would be preempted by ERISA in this context.