Owner Loan

[Guest EricWings]

Owner who is receiving no plan defined compensation and isn't actively participating in the plan wants to take out a loan. We use a Relius Prototype document and our loan rules currently state that repayment is only allowed through payroll deduction. If we change the loan rules to allow for a participant check we should be ok as long as all participants had the same option? Thanks

[Mike Preston]

I would go further. Payroll withholding being unavailable should be a non-discriminatory requirement it is ok to add.

[QDROphile]

So you would allow loans to participants who are no longer employed by the plan sponsor? Permissible. Uncommon. Raises questions about expectation that the loan will be repaid and the appropriate interest rate on a loan that does not have a lock on pay.

[Mike Preston]

Pretty big jump there. I didn't say that loans would necessarily be available to everybody who didn't have payroll withholding available. I said that not having payroll withholding available can be something that does not have to eliminate eligibility for a loan. See the diff?

[QDROphile]

I dunno. When I do the Venn diagrams, the intersection is very limited and the owner figures very prominently. What other participant will be able to borrow without payroll deduction? Otherwise, you get the same result as suggested by EricWings, so I don't see what goes further about your formulation.

[Mike Preston]

Any participant who has a reduction in compensation such that payroll withholding is insufficient to enable repayment of the loan on a timely basis. It wasn't the formulation that I went further with. It was the conclusory statement as to it being non-discriminatory which went further than merely saying it was "ok".

[QDROphile]

Maybe I am just too discriminating, but I see a fallback method of collection when payroll deduction fails as very different from instituting an arrangement that is tailored for the owner and does not even anticipate payroll deduction that is required of others. Perhaps I would feel better if the work force indeed had volatile compensation so the arrangement could be justified with a straight face.

[Mike Preston]

Maybe I am just too discriminating

Yuck, yuck...

I think the effect is identical, which is why I'm not concerned about it. In fact, I think every loan policy should have that in it (feverishly looks at own policy to see whether it is currently there.....hmmmm....no comment). Otherwise, what happens? An individual goes on maternity leave, having gotten pregnant in the 5 year period and can not continue to pay on the loan? CALL THE EEOC! THE DOL! THE NOW! Seriously, that just can't be right.