40(k) Loan while out on Disability

[52626]

If a participant is out on FMLA can they still take a loan from the 401(k) Plan?

The loan policy states loans are repaid through payroll deduction. Once she is paid her 6 days from her accrued PTO she will not receive a paycheck until she returns to work. I understand  when a participant with a loan is out on FMLA the  loan payments are suspended until they return to work.  However, this participant is already on FMLA.

The loan policy states loans are available to all Active participants. Technically isn't she still considered an active participant?

 

Thoughts??

 

[duckthing]

She's an Active participant as long as she meets the plan's definition while on leave, which she almost certainly does. (Surely nobody would try to get away with saying that participants are terminated when they go on leave, paying them "termination" distributions, then "rehiring" them at the end of their leave. And depending on what kind of FMLA leave, presumably she's being credited with service to prevent a Break in Service -- tough to justify for somebody who's not active.)

What's the cure period for loans? If she's issued a loan that's guaranteed to be deemed due to repayment not beginning until after the end of the cure period, she's essentially getting an in-service distribution where one would (presumably) not be permitted otherwise.

If repayments are going to begin and the loan reamortized/brought current upon her return before a deemed distribution would ever become an issue, I don't know that I see a problem. But I'm certainly open to other opinions from people with more experience.

[austin3515]

She is out on leave - she has a year to cure to the loan, and I think she gets the grace period after the end of the year (I..e, it goes into default in a year, and she then has a grace period).  But double check the grace period thing.  I think I had a thread on this out here once upon a time.

[austin3515]

Found it!

[david rigby]

Does the plan define disability as a distributable event?