Plan Termination and Loansd

[austin3515]

Parent Co buys the assets of Small Co. Small Co has a 401k plan which it will terminate. Paren Co allows loans anjd would like to let the two or three people with loans to roll their loans into the new plan. Do I need a plan amendment to allow this? What sort of paperwoirk is required from the participant to make such an election?

[ETA Consulting LLC]

It can be done. If the loan terms preclude the possibility, then you'll need an amendment. The note that the participant originally signed will become an asset of the new plan (and belong in the 'rollover' source). It's just an in-kind rollover; similiar to any other in-kind rollover.

Good Luck!

[austin3515]

Anyone have a sample amendment? OR could it very simply say "the plan will accept rollovers of particpant loans in plans sponsored by entities acquired by Parent Co"?

And then I assume the participant would perhaps make a notation on their distribution form with Small Co that they are rolling over their loan balance to Parent Co plan along with the rest of their balance?

[Kevin C]

What does the document say about rollovers in? Our VS document allows the employer to have a written policy detailing what kinds of rollovers in are allowed. If yours is similar, you may not need an amendment, just a written policy or maybe no changes at all. I've seen other documents where the adoption agreement had a choice to allow loans rolled in.

I would have the participant indicate on the distribution paperwork that they want to roll the loan.

[ESOP Guy]

Give some thought to the loan paperwork itself. The promissory note might need to be changed. At this point it is a contract between the part and the old plan. They might need to sign a new payroll authorization form to allow the new company to take the payments from their check.

Not sure on any of this. I don’t work with loans as much anymore as ESOPs have become more of my thing. But I used to work on 401(k)s with loans and I seem to recall people tended to look at them as merely a qualified plan perspective and forgot the loan was a series of contracts also.

[austin3515]

Give some thought to the loan paperwork itself. The promissory note might need to be changed. At this point it is a contract between the part and the old plan. They might need to sign a new payroll authorization form to allow the new company to take the payments from their check.

Great point, I'll have the participant sign a payroll authorization form. Come to think of it, I think that the old plan trustee would need to somehow formally assign the note to the new plan, no?