Leaves of Absence and Truth in Lending

[Christine Roberts]

Any advice out there on how to comply with truth in lending disclosure requirements after a participant's return from a leave of absence has resulted in reconfiguration of his or her loan repayments?

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[pjkoehler]

You'll want to make sure that the loan "reconfiguration" complies with Prop. Reg. Sec. 1.72(p)-1, Q&A-9, which provides that the level amortization requirement to avoid immediate inclusion of the loan proceeds in income is waived only for unpaid leaves (or paid leaves where the rate of pay does not exceed the loan payments required under the note) of up to one year. The loan must be repaid no later than the maximum amortization period provided under Code Section 72(p)(2)(B) and the installments must not be less than those required under the note in effect prior to the commencement of the leave period. If the plan "reconfigures" the loan in a way that doesn't satisfy these requirements, the IRS would likely take the view that the participant had a deemed distribution in the taxable year of the leave and the "truth in lending" issue is more or less academic.

[This message has been edited by PJK (edited 04-12-2000).]

[M R Bernardin]

I'm fairly certain that compliance with the truth-in-lending (Reg Z) requirements is judged based on whether there was accurate disclosure at the beginning of the loan, and that there is no requirement to provide additional disclosures upon re-amortization, unless the promissory note is being amended.