Participant Loan and Change in Payroll Period

[Dennis Povloski]

Lets say that prior to 1/1/2010, a company had a bi-weekly pay period. Starting on 1/1/2010 and going forward, the pay period switched from bi-weekly to semi-monthly (paid on the 1st and 15th of each month).

Participants make loan payments through payroll deduction. What happens to the amortization schedule when the pay period switched?

Should participant receive a new amortization schedule based on the outstanding principle due? Does the participants need to sign new loan paperwork because the terms of their original loan paperwork have changed? If the reamortized schedule calls for larger payments, and the participant has been making payments amount on the original schedule, what happens? Any other issues/thoughts?

Thanks!

[Tom Poje]

Let's not say anything changed and make life easier.

I know you have the ERISA Outline Book, Chapter 7, Section IX Part C.1.c. discusses this issue.

Take a look, I think I saw a copy sitting in the corner of that round room. oh no.

Reisch has similar comment at http://www.reish.com/publications/article_...m?ARTICLEID=244

Participant Loans

Many participants may have outstanding loans at the time of a 401(k) plan termination. Any outstanding loans that exist may be accepted as part of the rollover if the distribution otherwise meets the requirements for an eligible rollover, and the plan provisions and loan terms allow for the rollover. Each participant with a loan being rolled over should execute an acknowledgment that the acquiring law firm will be substituted as the obligee on the loans. A transfer of a note, which is part of an eligible rollover distribution, will not be considered a renegotiation or revision of the loan, since the substantive terms do not change. While the loan must be repaid within its original term, the repayment schedule can be revised to accommodate the acquiring law firm's payroll process without causing any tax consequences. (See Private Letter Ruling 9729042 and Code §§ 72(p) and 402(a)).

[Dennis Povloski]

That does make life easier. Thanks!