How Much Security for Loans -

[namealreadyinuse]

I have heard administrators apply a "2 times loan balance" rule for security for loans, but I don't know if that is in the regulations or their plans/procedures.

We are trying to come up with a formula for determining how much should be available for hardship distributions and want to know if we need to account for loans by doing anything other than disregarding the receivable.

Do we need to make sure that one times the outstanding loan balance is retained in the account (or even two times??) or is that just a rule that has to be met at the time the loan is originated?

[Leopurrd]

I'm assuming you are speaking of participant loans - I believe 72(p) states that security for the loan should be equal to 50% of the participant's balance as of the loan issuance date (or, a 1-to-1 ratio - if you had a 10,000 balance, your max loan would be 5,000 and your plan balance as security would also be 5,000).

If the participant wanted to take a hardship at a later date, which would put the participant's balance below the 50% threshold, it would be OK, because you did not violate 72(p) at the time of the loan issuance.

If I'm wrong on any account, I'm sure another poster will correct me. Thanks!

Vicki