403(b) plan loans and termination

[Guest BruceC]

If an employee with an outstanding loan balance terminates employment, is there any requirement that the loan be paid within a certain time period, say 60 days, or is this up to the plan. IOW, if the plan allowed it, could the former employee continue to make the regular, level payments over the remaining period of the loan?

Couldn't find anything addressing this in 1.403, 72(p) or Pub 571

Thanks

BruceM

[TLGeer]

If an employee with an outstanding loan balance terminates employment, is there any requirement that the loan be paid within a certain time period, say 60 days, or is this up to the plan. IOW, if the plan allowed it, could the former employee continue to make the regular, level payments over the remaining period of the loan?

Couldn't find anything addressing this in 1.403, 72(p) or Pub 571

Thanks

BruceM

Yes, but there has to be attention to detail in allowing it. I.e., the Plan should not require lump sum distributions (in general, 403(b) plans should leave distribution options up to the funding vehicles within the required limitations, so this will be OK if the Plan is well written). In addition, the loan provisions in the Plan should not accelerate on termination or require repayment through payroll withholding (again, a well-written plan document will defer to the funding vehicles on these points). And, of course, the funding vehicle has to allow it.

[rcline46]

But what if the funding vehicle is a custodial account in mutual funds rather than the antiquated annuity?

Why should the plan be forced to keep a former employee on the books who has taken all but the loan as a distribution, who is now creating second/third/who knows how many distributions?

Loans should become due and payable on ANY distributable event. (in my opinion)