5 years, even amortization

[J Simmons]

I've come across a couple of large institution 401k providers that are handling the loan repayments in this way. The first re-payment on the loan is not due for 45 days after the loaned amount is paid to the employee. That is the day of the first of 60 monthly repayments. That actually calls for repayment 5 years and 15 days from when the loan proceeds are advanced to the employee.

I do not recall anything in the statute or regs that permits a 15 day grace period to the 5 year repayment rule.

Does anyone have any info or thoughts on this?

[PensionPro]

Maybe, just maybe, they are allowing 15 logistical days for the funds to be received and deposited by the participant. How do the institutions justify their policies when you ask them?

[masteff]

A) It's in keeping w/ commercially reasonable practices on loans for first payment to delayed by a cycle (ie, you typically don't buy a car/house/boat on the 25th and have to make a payment a week later on the 1st).

B) It's administratively reasonable because of the time lag required to electronically coordinate the payroll deduction between the recordkeeping and payroll computer systems.

I used to work at a large employer w/ one of those large 401(k) providers and I can tell you anecdotally that we went thru full IRS and DOL audits w/ no problem on this issue.