Plan Changes Loan Provisions

[Vlad401k]

What happens to the existing loans when a plan changes loan provisions? Let's consider these scenarios:

1) There were 2 loans allowed in the past, but now the plan is amended to allow only 1 loan. Can participants who had 2 loans outstanding prior to the amendment still maintain both loans?

2) What if a participant with 2 loans wants to refinance them? Can he do that even though the plan only allows for 1 loan now?

3) What if the participant had loans outstanding and the plan was amended to not allow any loans. What happens to the existing loans? Can the participants still refinance?

Thanks in advance.

[ESOP Guy]

I am assuming the amendment was not written to answer these questions which it should have been done.

If the amendment doesn't answer this question then all plans give the Plan Administrator the power to make reasonable interpretations of the plan that don't discriminate.  The PA needs to use that power to answer these questions. 

To me I don't see how you don't grandfather the existing loans.  It might even be a protected benefit since it exists.

The next two I can make a case for either one and the PA would seem reasonable.  What I mostly see is you can't refinance in either case.  You might have 2 loans but any change needs to result in 1 loan after the change.  Likewise in 3 any change needs to result in zero loans. 

 

[RatherBeGolfing]

1.  A change in the policy does not mean that existing loans are somehow invalid because they don't fit the new policy.  The existing loans are contracts between the plan and participant.  

2 &3.  I agree with ESOP Guy.  If the amendment or new policy does not specify how to handle those issues, PA should use discretion and apply the new policy uniformly. On the other hand, it might be better to take care of that in the amendment or write it in to the new policy (not part of the amendment) to eliminate any confusion.

[CuseFan]

agree - amendment or policy change cannot impact existing loan(s)

refinancing creates an additional loan (to repay the prior loan(s)) and would violate the now existing terms of the plan or policy against multiple loans