Loan for Terminated Plan

[DGiii]

Hello,

I am looking into a client who has a loan in a 401(k) retirement plan but they are about to terminate the plan because of an asset sale that happened. The company who acquired didnt take the retirement plan so the plan was being termed.

The question being: Can the retirement plan at the new company assume the loan for this participant?

Let me know if more information is required. I'm only asking is because the client will be on thin ice if they have that tax consequence...

DG

[jpod]

Assuming the participant is going to work for the acquiror and will be eligible to participate in a plan of the acquiror, the question to ask is "will that plan permit the participant to roll over his loan to that plan?". It may permit it, but not all plans do permit it.

[DGiii]

Ahh, okay. Say they do allow for the acquired employees to rollover balances. Would this be allowable since the loan has not yet hit the end of the cure period? My worry was just if this is a common method of solution when things like this happen?

[Lou S.]

The common method is to force the participant to either pay off the loan or take a taxable distribution.

In some situations the asset acquiring company will allow participants to rollover loan balances along with the other funds, but in my experience that this the exception rather than the rule. Your mileage may vary.

[QDROphile]

It can be a point of negotiation in the acquisition transaction. Sounds like it is too late for this transaction.