Plan Loan Extending Beyond Plan's Maximum Term Limit

[401 Chaos]

Not sure where best to post this question but wanted to try here first. 401(k) Plan document expressly limits plan loan terms to a maximum of 5 years. Plan Administrator and TPA permitted a participant to take out a principal residence loan for 10 years. That period is generally reasonable, in keeping with how TPA handles other principal residence loans under other plans without a five-year limit, and would otherwise comply with applicable plan loan rules, etc. except for the plan's express 5-year term limit. Plan has since been amended to permit longer terms for principal residence loans.

Is this an error that can be corrected by adoption of a retroactive plan amendment to permit longer plan loans per Section 2.07(2)(a) of Appendix B of Rev. Proc. 2008-50 and filing under VCP? If so, is there any easier way to correct the error given that the Plan now already permits longer plan loans, etc.? Thanks.

[ETA Consulting LLC]

Not sure where best to post this question but wanted to try here first. 401(k) Plan document expressly limits plan loans to a maximum of 5 years. Plan Administrator and TPA permit a participant to take out a principal residence loan for 10 years. Period is generally reasonable and loan would otherwise seem to comply with applicable plan loan rules except for the plan's express 5-year limit. Plan has since been amended to permit longer loans for principal residence loans.

Is this an error that can be corrected by adoption of a retroactive plan amendment to permit longer plan loans per Section 2.07(2)(a) of Appendix B of Rev. Proc. 2008-50? If so, any easier way to correct that operationally given that the Plan now permits longer plan loans, etc.? Thanks.

Typically, you cannot retroactively amend a plan to conform to an operation unless you approve that method of correction under a VCP filing. That's certain an approach to consider.

Good Luck!

[401 Chaos]

Just wanted to bump this to see if anybody else had thoughts or experience with self-correcting this type of error through a retroactive amendment with a VCP filing to change the plan terms to permit longer loans for principal residence loans. Not opposed to doing a VCP filing if that will take care of the issue but just trying to be sure we are not missing any obstacles on that front. Thanks.