Multiple Employer Plan - Loans

[Pam S.]

A multiple employer plan we administer allows for loans. When one of the members of the MEP ceases its arrangement with the PEO and ultimately stops making contributions to the plan, but does not start up their own individual plan - what happens to the employees that may have outstanding loans? The loan payments have ceased being deducted from the participant's pay as a result of the fact that the PEO is no longer handling payroll for the employer. But, the employee is still an active employee of the employer, so in that sense, a default isn't triggered. But a default will be triggered when the Trust doesn't receive loan payments for a period of 90 days. So, is it as simple as drafting the loan policy to have verbaige for this particular situation allowing the participant to continue to make payments directly to the Trust? Has anyone run into this situation before?

[QDROphile]

Your suggestion is viable and certainly beneficial to the participant. Many administrators do no like the addtional hassle that goes with collecting checks. Your terms should deal with what happens with late checks, checks for the wrong amount or NSF. Keep in mind that collection is a fiduciary matter, so if there is a default, the fiduciary will have to decide what to do about enforcement of the promise to pay. And everything will have to be disclosed in the laon disclosure. A more radical approach would be to require the employers to continue with payroll deduction and forwarding funds to the plan after discontinuing particpation in the plan. Who makes the call?

[MWeddell]

Be aware that the promissory notes or loan agreements with the participant may not allow the employer to unilaterally decide to cease collecting loan repayments by payroll withholding.