Loan Policy

[Guest Serena]

How are TPA's and document providers handling loan policies in a multi vendor and product environment? For example you could have a plan that has a 403b1 annuity and b7 custodial account with one provider, and then contracts, some active some inactive, with multiple vendors, and all allow 2 or 3 loans. Does the plan document then defer to the underlying contract, or are you actually creating a loan policy with each contract's provisions stated therein - number of loans, interest rate, repayment provisions, sources - they could all differ among contracts!

The written plan document under the final 403b regs is making this a challenge!

[QDROphile]

Someone must serve as the coordinator to make sure that the rules in the statutes and regulations are followed, and the information sharing agreements must require that the providers report to the coordinator and abide by the coordinator's dictates in making loans. The coordinator cannot make a provider loan amounts contrary to the provider's rules, but the coodinator can disallow loans that a provider would, by itself, make to the extent necessary for compliance with the law and plan terms. The plan should have some baseline loan terms, but allow room for the terms of the loan products of the providers.

[TLGeer]

Someone must serve as the coordinator to make sure that the rules in the statutes and regulations are followed, and the information sharing agreements must require that the providers report to the coordinator and abide by the coordinator's dictates in making loans. The coordinator cannot make a provider loan amounts contrary to the provider's rules, but the coodinator can disallow loans that a provider would, by itself, make to the extent necessary for compliance with the law and plan terms. The plan should have some baseline loan terms, but allow room for the terms of the loan products of the providers.

Agreed. As to plans seeking ERISA exemption as not maintained by the employer, see my post on FAB 2010-01 at http://401k-403b-457-plansblog.blogspot.com/ As to other plans, the plan administrator can weigh in to whatever extent the plan documents provide and the PA sees fit. However, the PA cannot enlarge on loan rights under the affected funding vehicles. What to do, as a practical matter if an insurance company processes loan requests independently is somewhat problematic even where the plan has a PA.

My perception is that the source of the problem is basically the dominance of individual annuities in the marketplace. It is the existence of multiple, uncoordinated funding vehicles that creates the risk of multiple loans. In the individual annuity situation, the problem is more difficult than with, say, an array of mutual funds in a more standard 401(k)-style design amd operational structure.

Tom Geer