Interest Rate on Plan Loan

[Guest meeh3704]

We have a situation where the plan and the spd require only that plan loans bear a reasonable rate of interest. However, the loan policy requires the plan to charge a rate that is updated monthly based on the prime rate as published in the wall st journal. Unfortunately, a loan was made based on last month's rate because the plan had not yet calculated the new rate at that time. The rate actually used is reasonable (based on commercial standards) and actually is lower than the rate that should have been charged.

The issue is whether we have an operational failure. Is a loan policy considered a plan document?

[masteff]

...that is updated monthly ...

...because the plan had not yet calculated the new rate at that time...

These statements form a timeline, not a contradiction nor a definition of a failure.

The old rate is used until the new rate is calculated and becomes effective. Unless the loan policy has a lot more specificity about the dates on which the calculation is to occur and the new rate to become effective, then I'd say that you did the calc within a time period that was administratively reasonable but just so happened to be after the loan was issued.

It would be a different story if the rate you issued the loan under was 2+ months old (meaning you'd truly failed to update the rate on monthly basis).