Loan Rollover Into Plan Not Allowing Loans

[ERISA11]

Would a plan that does not otherwise allow loans be able to accept loan rollovers in connection with an acquisition (assuming the accepting plan's rollover language does not prohibit a rollover in the form of a loan and assuming that all those with rolled over loans are non-highly compensated)? On the one hand, it seems that allowing a loan rollover is distinct from allowing the issuance of an original loan under the plan. But I am wondering if it runs afoul of the prohibited transaction exemption for loans, which requires that loans be made available to all participants on a reasonably equivalent basis. Is anyone aware of any authority or guidance on this issue or have any experience or thoughts on it?

[Lou S.]

You could probably allow it. The only issue I could see is if the existing loans are all or substantially all to highly compensated employees but you've stated that isn't the case.

You might want to document the administrative procedures and even go so far as to adopt an amendment something to the effect of "Due to the acquisition of the XYZ company, the ABC will accept rollovers of loans in-kind from the participants of XYZ company who rollover their accounts to the ABC plan and will allow the loans to be repaid under their original term in the XYZ plan. New loans will still not be offered in the ABC Plan" Or something along those lines.

This is assuming ABC company wants the head ache of administering rolled in loans form XYZ.

[ESOP Guy]

I would strongly recommend the amendment to be done and clear. This makes it clear a type of loan is allowed and why others aren't. It also makes it clear that just these and not other rollover loans are allowed.

In short I see a well thought out amendment stopping future debates and charges of "but you allowed this rollover you have to accept these now". Or why does Joe have a 401(k) loan and I can't have one?

[Bird]

We've done it, at least in the case of a plan merger. As noted, just spell it all out.

[ERISA11]

Thank you everyone for the helpful responses. I appreciate them.