loan and alienation rules

[Guest erisaattorney]

Defined Contribution Plan has a rule that a participant must not have more than a 60% debt to income ratio to receive a loan. If loan proceeds were used to pay off participant's debt, he would meet the 60% debt to income ratio. Participant is willing to assign loan proceeds to creditors to pay off debt.

1.401 (a) -13(e) allows for voluntary assignments of benefit payments. See below. My only question is whether there is a reason for treating loan proceeds different from a benefit distribution for purposes of this rule?

1.401 (a)-13(e)

Special rule for certain arrangements—(1) In general. For purposes of this section and notwithstanding paragraph ©(1) of this section, an arrangement whereby a participant or beneficiary directs the plan to pay all, or any portion, of a plan benefit payment to a third party (which includes the participant's employer) will not constitute an “assignment or alienation” if—

(i) It is revocable at any time by the participant or beneficiary; and

(ii) The third party files a written acknowledgement with the plan administrator pursuant to subparagraph (2) of this paragraph.

(2) Acknowledgement requirement for third party arrangements. In accordance with paragraph (e)(1)(ii) of this section, the third party is required to file a written acknowledgement with the plan administrator. This acknowledgement must state that the third party has no enforceable right in, or to, any plan benefit payment or portion thereof (except to the extent of payments actually received pursuant to the terms of the arrangement). A blanket written acknowledgement for all participants and beneficiaries who are covered under the arrangement with the third party is sufficient. The written acknowledgement must be filed with the plan administrator no later than the later of—

(i) August 18, 1978; or

(ii) 90 days after the arrangement is entered into.

[david rigby]

Would it be easier (and perhaps "cleaner") if you deal with this in the defnition in the plan?