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403(b) Loan Note Rollover


Guest Grumpy456

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Guest Grumpy456

I have stumbled across a problem that I need help answering. Medical practice sponsors a qualified retirement plan under Section 401(a). Hospital sponsors a 403(b). Both plans permit loans.

Hospital purchases medical practice and assumes sponsorship of the medical practice's plan. Hospital wants to terminate the medical practice's plan. A number of participants in the medical practice plan have outstanding loans.

If hospital terminates the medical practice's plan, can the loan notes from that plan be directly rolled into the hospital's 403(b) plan?

The only guidance I have found on this issue is contained in PLR 9617046 which provides, in relevant part, that a loan note may be transferred from one 401(a) plan to another 401(a) plan. Of course, the hospital's plan is not a 401(a) plan, it is a 403(b) plan.

In addition, I found the following statement in Treas. Reg. Sec. 1.401(a)(31)-1, Q&A-16: A plan administrator is permitted to allow a direct rollover of a participant note for a plan loan to a qualified trust described in section 401(a) or a qualified annuity plan described in section 403(a). Of course, the hospital's plan is neither a 401(a) plan or a 403(a) plan, it is a 403(b) plan.

Any help or direction is greatly appreciated.

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The reg was written at a time when rollovers from Q plans were limited to another Q plan or an IRA. In 2001 congress allowed rollovers from Q plans to 403b plans and vice versa. Since a plan loan/note is a plan asset the loans in the Q plan can be transferred to the 403b plan the same as any other assets in the Q plan.

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