Excluded Status - Loan Availability

[WesleyT]

An employee is a participant in a 401(k) plan that excludes union employees. Last year, the employee changed to union status. The union employee is clearly not able to take a distribution (no distributable event), but is he eligible to take out a loan? Does his union status preclude him from this feature? The plan document only addresses "Change in Status" with respect to Years of Service, Years of Vesting service, and eligibility upon a subsequent status change.

Thanks for any help!

Wes

[J Simmons]

An employee is a participant in a 401(k) plan that excludes union employees. Last year, the employee changed to union status. The union employee is clearly not able to take a distribution (no distributable event), but is he eligible to take out a loan? Does his union status preclude him from this feature? The plan document only addresses "Change in Status" with respect to Years of Service, Years of Vesting service, and eligibility upon a subsequent status change.

Thanks for any help!

Wes

Unless the governing provisions of the plan documents that address participant loan availability exclude this EE, he ought to yet be able to take a loan on the terms otherwise set forth in those plan provisions. Provisions that might exclude him would be include one that might require that the loan be taken at a time when the employee is an actively accruing or eligible to actively accrue benefits in the plan.

[QDROphile]

I have serious doubts that such an exclusion would pass the "reasonably equivalent basis" requirement.