Loans and leave of absence

[pjb1835]

Participant had an accident and out on unpaid medical leave.  He wants a 5 year loan.  Plan doesn't allow hardships and employer is only willing to allow payroll loan repayments.   Can he take out a loan now with no repayments until returning (before a year) and then have the loan "reamortized?"  In other words, do you have to already have a loan in place before you can take advantage of loan repayment forgiveness for leave of absences?

[PAiPal]

The regulations are not clear on this but as long as you meet the requirements of 72(p)(2) at the time the loan is granted, there is an argument that it could go into immediate suspension.  I would document everything in the loan paperwork with the employer agreeing to suspend the payroll loan payments until the participant returns from medical leave (no longer that one year) and the participant acknowledging that interest will accrue on the loan during the medical leave.