Interest on participant loan from a pooled trust

[BG5150]

Where would it say if interest from a participant loan in a pooled trust goes to the participant's portion of the trust or allocated across the entire trust?  Is the former possible in this situation?  It's been a long time since I've had a pooled trust with loans.  And I believe I would allocate interest to each participant who had a loan rather than the trust as a whole.

[ETA Consulting LLC]

I think the most important thing is to be consistent in your methods. It would appear senseless to argue one over the other. 

Good Luck!

[ESOP Guy]

It would be in the section that describes earnings allocations.  I used to do a good number of balance forward 4ks and PSP back in the day and most plan documents didn't say.  So we pointed to the section of the plan that said if the document the Plan Administrator has the right to interpret the plan document in any reasonable way that is nondiscriminatory.  So most put the interest back to the individual.  I did have one plan that put the participant loans in the "bond fund".  Almost 50% of the earnings were those loans and not actual bonds.  I think this plan allowed people to choose to change their funds once a quarter but it was balance forward otherwise. 

 

Once again if the Plan Administrator interprets the plan and is consistent I don't ever recall a problem. 

[BG5150]

Found it in the loan policy at least. 

All loans will be considered a general Trust investment. As such, all payments of principal and interest made by the Participant will be credited to all Participant accounts.

[MoJo]

I was going to say, if "all" participant assets are used to fund the loan (as they are in pooled account loan), the "all" participant should share in the earnings from that loan.  After all, such a loan is nothing more than an investment the trust makes....

[RatherBeGolfing]

38 minutes ago, MoJo said:

I was going to say, if "all" participant assets are used to fund the loan (as they are in pooled account loan), the "all" participant should share in the earnings from that loan.  After all, such a loan is nothing more than an investment the trust makes....

I wouldn't go as far as "should".  It is not uncommon to treat a participant loan as a segregated asset (some documents use term participant directed asset) even when you have a pooled trust.  

 

[ESOP Guy]

Yeah I have seen plenty of balance forward plans that the only individually directed asset was the participant loans. 

[MoJo]

Uh, I guess that's why I said "if "all" participant's assets" are used to fund the loan - then, by definition, it is a pooled asset.  If it's considered a "participant directed" asset, it is no longer part of the "pooled fund."

[RatherBeGolfing]

15 minutes ago, MoJo said:

Uh, I guess that's why I said "if "all" participant's assets" are used to fund the loan - then, by definition, it is a pooled asset.  If it's considered a "participant directed" asset, it is no longer part of the "pooled fund."

Thats my bad, I misinterpreted your first comment as saying loans from pooled assets should be treated as an investment of the trust rather than separate from the trust.

[MoJo]

13 hours ago, RatherBeGolfing said:

Thats my bad, I misinterpreted your first comment as saying loans from pooled assets should be treated as an investment of the trust rather than separate from the trust.

Just out of curiosity, do you see such loans more as a pooled asset or as a segregated asset?  I work for an insurance company based service provider, and we really haven't seen a "segregated" asset loan from our pooled account plans in a long, long time (but then again, we no longer offer "pooled" loans in new "contracts" - so that business is dwindling)....

[RatherBeGolfing]

2 minutes ago, MoJo said:

Just out of curiosity, do you see such loans more as a pooled asset or as a segregated asset?  I work for an insurance company based service provider, and we really haven't seen a "segregated" asset loan from our pooled account plans in a long, long time (but then again, we no longer offer "pooled" loans in new "contracts" - so that business is dwindling)....

I'm not a big fan of loans in the first place, but I see it however it is defined in the document.  I have no problem treating it either way.  Post EGTRRA, I have not seen a document silent on it so it really isn't a judgment call it is just a matter of following the document.  The other participants are probably not seeing decline in their earnings due to the loan since earnings on those assets would have been allocated to the participant with the loan. 

[Bird]

FTW has an option-

38. If the plan does not permit participant self-direction, are loans treated as a segregated investment  Yes / No

Interestingly, it is in the " Items Below Do Not Affect Plan Document" section so I guess it will only be in the loan policy, not the document itself.  Better than not at all I guess.

 

 

[RatherBeGolfing]

Bird you are correct that the selection is in the loan policy.  However, the basic plan document also provides :

Section 8.06 (f) Security. All loans shall be secured by no more than one-half of the vested portion of the Participant's Accounts (determined immediately after the origination of the loan) and such additional security as the Plan Administrator may deem necessary. All loans made to Participants under this Section are to be considered Trust Fund investments and shall be segregated as provided in Article 9 hereof unless the Plan Administrator provides otherwise.

Section 9.02 (c) Loans. If the Adoption Agreement does not permit Participant self-direction, any assets that are held in the form of a Participant loan made pursuant to Article 8 shall be treated as a segregated investment unless otherwise provided by the Plan Administrator.