Conflicting Loan Policy and Promissory Note

[Guest Statler]

Client has a loan policy that say loan payments after default are allowed (payments not payoff) before a deemed distribution. The promissory note only allows for a payoff after default. Which would control? I am tending towards the promissory note since it is more specific and is signed by the participant. I am getting caught up on the fact that when dealing with a discrepency between an adoption agreement and a summary plan discription, even with language saying the adoption agreement controls, the courts usually find in favor of th summary plan discription. (we are in the process of getting the documents to line up, but there are existing loans that are effected)

[QDROphile]

If you have a competent promissory note, the creditor does not have to exercise rights strictly and a can allow payments to bring the note current. If you don't have a competent promissory note, get soem competent help and modify the note terms. Or are you arguing that the desired policy is a strict policy and someone wants to get around the description of a less strict policy and use the note as the lever? What is the line you want to line up?

[J Simmons]

Does the Note specifically state that payoff cannot be before default? or is that the implication because all the Note states is that payoff can be made after default?

If the Note specifically prohibits payoff before default, then I agree with QDROphile.

If the Note doesn't prohibit nor specifically authorize payoff before default, then I think as the Note holder the plan trust should allow for payoff before default, consistent with the loan policy.

[Guest Statler]

Sorry, the promissory note does not allow for payments (not payoff, payoff is allowed) after default. We are trying to argue that the participant must pay off the loan in full after default and cannot continue to make partial payments after default.

[J Simmons]

If your loan policy allows for PAYMENTS after default but the Note does not, was it a failure of the plan fiduciaries to follow the terms of the plan by making the loan on the basis of a Note that does not comply with the loan policy? Would those plan fiduciaries be furthering the failure by taking a position on the enforcement of the Note that is at odds with the loan policy?

Is this a non-HCE borrowing participant? Has a loan pursuant to the policy been made to an HCE with a note that allowed for payments after default? If the answers to these two questions are yes, you may have a problem with a BRF discrimination.