Loan Availability AFTAP < 80%

[Andy the Actuary]

It doesn't appear the proposed reg. on underfunded plans restricts the ability to take a plan loan when the AFTAP is less than 80%, since we are not talking about an annuity start date. But, if the loan defaults, you could have the equivalent of lump sum distribution of a prohibited payment. Thus, it seems inconsistent that you could take a loan.

What, if anything, is being missed here?

[SheilaD]

Ask not what you are missing -- but rather what they have missed. I think this is just another issue that was not clearly thought out.

[Kevin C]

Andy,

Loans should not be a problem. The benefit restrictions of section 436 are referenced in 401(a)(29). Look at 1.72(p)-1, Q&A 12.

Q-12: Is a deemed distribution under section 72(p) treated as an actual distribution for purposes of the qualification requirements of section 401, the distribution provisions of section 402, the distribution restrictions of section 401(k)(2)(B) or 403(b)(11), or the vesting requirements of §1.411(a)-7(d)(5) (which affects the application of a graded vesting schedule in cases involving a prior distribution)?

A-12: No; thus, for example, if a participant in a money purchase plan who is an active employee has a deemed distribution under section 72(p), the plan will not be considered to have made an in-service distribution to the participant in violation of the qualification requirements applicable to money purchase plans. Similarly, the deemed distribution is not eligible to be rolled over to an eligible retirement plan and is not considered an impermissible distribution of an amount attributable to elective contributions in a section 401(k) plan. See also §1.402©-2, Q&A-4(d) and §1.401(k)-1(d)(5)(iii).