pLAN LOANS

[Gary]

Say a company sponsors a DB pension plan and a DC 401k plan.

The db plan provides for plan loans to all participants on same basis.

The 401k plan does not allow for plan loans.

Anything seem unreasonable about that?

thanks

[Dougsbpc]

Are the same employees eligible for both plans?

If so, there should not be a problem.

Some years ago we took over a small DB and PSP. The company owner, his wife and his son were covered under the DB plan and four employees were covered only under the PSP. The DB was the only plan to allow loans. We thought this may be a problem as only HCE's were effectively allowed loans as they were the only participants of the DB. They agreed to amend the PSP to also allow loans.

[My 2 cents]

DB plans should not be allowed to permit participant loans at all. No loans, no hardship withdrawals.

And those discriminatory DB/DC combinations where only the owners are covered by the DB plan shouldn't be allowed either, especially with the owners being the only ones who can take loans. The two plans should be ruled not comparable because the DC participants must bear investment risk and the DB participants don't (the fact that the owners bear the risk of investment losses on the DB plan by virtue of the impact on future contributions should not be passed to through to them in their capacity as participants. In their capacity as participants, they are entirely shielded from investment risk, so benefits rights and features cannot be comparable between a DB plan and a DC plan and the regulations and laws should operate in recognition of that fact.

[david rigby]

DB plans should not be allowed to permit participant loans at all. No loans, no hardship withdrawals.

Not disagreeing with comments from My 2 cents, it may be useful to point out that his/her use of "should" is an opinion; no DOL or IRS reg prohibits a loan feature in a DB plan. Before any such feature is used, the sponsor should be aware of the pros and cons.

- IRC 4875(d)(1) outlines the PT exemption.

- See DOL reg 2550.408b-1 for the details regs. Note especially paragraph (f)(1).

- See the preamble to the DOL reg, esp.

...ERISA's general fiduciary requirements may also require a plan administrator of a defined benefit plan who intends to use a portion of a participant's vested accrued benefit as security to consider additional factors such as the funding of the plan in determining the amount that may be borrowed based on the vested accrued benefit.

[Gary]

Most of the participants in the DC plan are in the DB plan. All DB participants have same rights, but NHCEs have a lower pension relative to owners in DB plan.