Loan from Rolover Account

[PFranckowiak]

Plan currently does not allow for loans.

Want to add that participants can take loans from Rollover account only.

Two owners have Rollover Accounts

25% of other participants have R/O accounts.

Do I have to pass nondiscrimination tests - as all are allowed R/O accounts - they just don't have them.

Thanks

Pat

[ETA Consulting LLC]

In order to satisfy the exemption from being a prohibited transaction, plan loans must be made available on a reasonably equivalent basis to all participants. So, does that appear remotely close to a reasonably equivalent basis? I wouldn't do it.

Good Luck!

[Bird]

mmm, I'm not entirely confident in this but mightn't the "reasonably equivalent" basis be tested on accounts that they "could" have, kinda like deferrals in a 410(b) test counting as long as they could be made?

Having said that; I would try to avoid it myself. We limit loans to deferrals and rollovers all the time (i.e. "not employer money") and (I think that's ok) it might accomplish pretty much whatever they are trying to do.

[PFranckowiak]

My boss feels that if anyone can rollover an IRA into the plan and have a rollover account that they could take a loan. Most people probably have IRA's that could be rolled over.

I think the ER does not want to restrict money that the people rolled into the plan, but doesn't want to open the door for a lot of loans from the plan as they want people to think retirement savings, but not limit money they could roll in and out of the plan.

I am still on the fence with this. Appreciate the comments.

P

[GMK]

they want people to think retirement savings

IMNSHO, this is all it should be ... unless the plan sponsors are already bankers.

Employees can save separately for their rainy days.

I'm thankful our plan is retirement only.