401(k) Loan Restriction

[oriecat]

We have an employee who terminated about 10 years ago and so his 401k loan at that time defaulted. He was rehired maybe a year or so later and now our recordkeeper says he can never have another 401k loan again because of the default on his record. Is this the law somewhere, or would this be a plan provision that we should be able to get changed?

[12AX7]

The loan restriction is most likely a plan provision, or perhaps a plan recordkeeper restriction (reflected in a plan provision). If the participant never consented to a distribution of their account, then the loan still exists in the plan. Where the account balance was distributed, including the offset for the loan, then it's no longer part of the plan and perhaps not subject to any restrictions.

[K2retire]

It's a relatively common provision to say that once a participant has had a defaulted loan they are not eligible for any further loans.