Rollovers of Participant Loans

[austin3515]

Anyone done this with the Corbel Prototype 401(k)? Is this covered somewhere in the plan document? Does it need to be? Is there a write-up out there by someone going over how to do this?

[ETA Consulting LLC]

I "think" this would be merely implied in whether a distribution is allowed in-kind. I don't believe there is explicit language stating "You are allowed to perform a direct rollover of a plan loan to another qualified plan". I never saw exact language, but merely incorporating this transaction into the existing structure.

Good Luck!

[four01kman]

Austin, I think this is an issue for the custodian. If the "new" custodian will accept the transferred loan, there would be no problem. Maybe I'm just stating the obvious, but I don't think this is a plan document issue.

[Gadgetfreak]

This was discussed at one of the ASPPA break-out sessions last month. One of the main things they said was most loans have non-assignability clauses in the Document/Loan Policy which would prohibit transferring loans. I don't have experience with Corbel Docs to comment on that though.

[ESOP Guy]

Along the same lines as RPG one needs to look at the promissory note also. Many of the notes I have seen require the person to pay via the company's payroll. Also, I have seen plan notes that become fully payable upon termination.

So while pension law may allow the note to transfer the note under contract law doesn't allow it because it is suppose to be paid via the prior sponsor's payroll system or became due upon termination.

[jpod]

RPG and ESOP GUY: But, the participant is consenting to the "assignment" by directing the rollover. Do some people in the industry really fear that a loan rollover directed by the participant/borrower is somehow an invalid rollover or a qualification issue or fiduciary breach issue or a PT issue because the paperwork contains an anti-assignment clause?

[BG5150]

Did you ask Corbel about it? They have pretty good service re: their docs if I recall.

[ESOP Guy]

RPG and ESOP GUY: But, the participant is consenting to the "assignment" by directing the rollover. Do some people in the industry really fear that a loan rollover directed by the participant/borrower is somehow an invalid rollover or a qualification issue or fiduciary breach issue or a PT issue because the paperwork contains an anti-assignment clause?

jpod:

I have never thought of it in those terms. To me this is more an issue of pension people tend to only look to JUST pension law and if it allows an action to think it is allowable. This type of transaction very well could be allowed under pension law. But a contract is also a contract and you can't just ignore it because pension law says the breach of contract is legal. If the note says the note is due upon termination with XYZ corp and the person terminates the note is due and it can't be rolled to the new plan-- not because it isn't allowed by law but because there is no long a loan to roll-- it is due. Likewise I have seen plenty of notes the explicitly require the payment be made via payroll deduction while working for XYZ Co. Once again how does that work if they now work for ABC Co. Maybe you can get an agreement to assign both parts the loan and the payroll deduction. But at a minimum that would seem like the promissory note needs to be reworked. Is the reworking of the promissory note now a refinanced plan loan? I just think this is more complex then people tend to think of it because they tend to think ONLY in terms of pension law and not the whole transaction from a more complete perspective.

[jpod]

Respectfully disagree. The party with the right to enforce the anti-assignment provision is waiving that right, in fact he/she is directing that it be violated. There is no breach of contract here.