Loan to inactive participant

[7806akp]

An employer maintains two 401(k) plans, which each provide for plan loans payable only by automatic payroll deduction. An employee has changed status so he is an inactive participant in the plan that holds his contributions to date ("Inactive Plan") and an active participant in the other plan which has a very low balance ("Active Plan"). The employee wants to take a plan loan from the Inactive Plan, but due to payroll issues, the employer is not able to process automatic loan repayments to the Inactive Plan while processing salary deferrals to the Active Plan. Any ideas for how to handle when the employee seems to have a right to take a loan from a plan, but the employer cannot handle the administration of the loan? The plan allows for elective transfers between plans, but the employee may not want to make the transfer from one plan to the other.

[Bird]

I wouldn't let the automatic payroll deduction requirement get in the way of making the loan, especially since the problem, if I understand correctly, is strictly a payroll issue. I'd probably ask if he could make the transfer to keep it simple, but if not, you set up the loan with the intent of having it paid by p/r deduction, and then when they can't do it (oh gee) you make other arrangements to get it paid.