Loan from Affiliated member 401(k) plan

[Guest Silver]

I am an employee at Company A. Approx 3 years ago Company A merged with Company P, but the 401(k) plans have not been merged. Approximately 2 years ago I started working for Company P and my funds with the Company A plan remained with the Company plan.

In the last week, I have learned that one of my children needs medical care not covered by my POS insurance policy and I need to provide approx $30k to the provider who initiated care early this week. I urgently need to borrow against the Company A plan funds. I have been informed that I cannot borrow against them since it is a separate legal entity, and that I cannot roll my balance from Company A 401(k) plan to the Company P 401(k) plan. They apparently are in the process of doing a plan to plan transfer to merge the 2 plans, but this will not be complete for approx 2 months. In the meantime, I cannot borrow against the balance in my Company A 401(k) plan account. If I cannot borrow the funds within 10 days, my daughter will be discharged from her care (2 weeks early) because I have not been able to pay them.

Is my company correct in denying me the ability to roll the funds from Company A to Company P or let me borrow against the Comany A account?

[J Simmons]

It depends on what the plan documents provide.

[Guest Silver]

It depends on what the plan documents provide.

This is not my area of expertise. If the plan docs are silent on the issue, do you know of any athority that would prevent me from either rolling the balance from Plan A to Plan P or borrowing against the Plan A account balance (and using a payroll deduction from Plan P to repay the loan, which will become a Plan P loan when the plans are merged within the next 2 months)?

[masteff]

Since Company A and Company P are related companies (you stated above they merged), you did not have a termination of employment when you moved from A to P. Generally your funds are restricted while employed, which is what prevents you from doing a rollover.

As to a loan, Plan A has to specifically provide that loans are available. If the plan document doesn't provide for them, then they can't let you take one.

If you don't already have one, ask for an SPD for Plan A (Summary Plan Description). Read thru it looking for references to loans. If it refers to them and makes it appear they are available in the plan, then take the SPD to the Benefits Department and politely point them to that section and ask how that applies to you.

If you are truly in need of the money, then you might have to consider a hardship withdrawal. Medical expenses in excess of insurance are a standard IRS hardship reason. You would need something from the provider showing the cost of the treatment, the amount covered by insurance, and when treatment began. I realize you'd prefer a loan over a withdrawal, but sometimes circumstances truly override. The Plan A SPD should confirm if hardship withdrawals are available and what reasons are allowed.

The other possiblity to consider is to take a letter from your company to the medical provider explaining that your funds are currently unavailable but due to the plan merger in process, you will have $X availlable on approx xx/xx date. If the provider has already started treatment w/ out pre-payment, then they might accept some assurance that money will become available as adequate to continue treatment. Just be sure to confirm you'll actuallly be able to take a loan or withdrawal from Plan P once the plan merger is complete.

[Guest Silver]

Since Company A and Company P are related companies (you stated above they merged), you did not have a termination of employment when you moved from A to P. Generally your funds are restricted while employed, which is what prevents you from doing a rollover.

As to a loan, Plan A has to specifically provide that loans are available. If the plan document doesn't provide for them, then they can't let you take one.

If you don't already have one, ask for an SPD for Plan A (Summary Plan Description). Read thru it looking for references to loans. If it refers to them and makes it appear they are available in the plan, then take the SPD to the Benefits Department and politely point them to that section and ask how that applies to you.

If you are truly in need of the money, then you might have to consider a hardship withdrawal. Medical expenses in excess of insurance are a standard IRS hardship reason. You would need something from the provider showing the cost of the treatment, the amount covered by insurance, and when treatment began. I realize you'd prefer a loan over a withdrawal, but sometimes circumstances truly override. The Plan A SPD should confirm if hardship withdrawals are available and what reasons are allowed.

The other possiblity to consider is to take a letter from your company to the medical provider explaining that your funds are currently unavailable but due to the plan merger in process, you will have $X availlable on approx xx/xx date. If the provider has already started treatment w/ out pre-payment, then they might accept some assurance that money will become available as adequate to continue treatment. Just be sure to confirm you'll actuallly be able to take a loan or withdrawal from Plan P once the plan merger is complete.

Thanks very much for your help