Takeover Loan Question

[Vlad401k]

Let's say the plan allows for loans to be rolled over, but does not allow new loans to be taken. A participant rolls over the loan from the previous employer (let's say that employer has weekly pay frequency, so 52 loan payments were made a year). The new plan has bi-monthly pay frequency (24 pay periods). Since the new plan does not allow for loans, should the amortization schedule stay the same as it was with the previous employer or can it be changed to a bi-weekly schedule? Also, if the amortization schedule is changed, there might be a slight discrepancy (by a few days) when the loan is paid off. Is that allowed?

 

Thank you.

[Bird]

IMO, if the receiving plan does not allow new loans but does allow loans to be rolled over, it still needs a loan policy and all of these details should be covered under that policy.  I'd suggest that it be reamortized on the new payroll schedule and would not be overly concerned about a few days difference in the final payoff date.

[hr for me]

Agree that I would suggest reamortization, otherwise payroll is (probably) not going to be able to handle deductions on a differing schedule than its current pay frequency.  I would suggest making the final payoff date slightly earlier if it at all was going to bump up to the 5 year max.

Who thought this was a good idea without already having loans in the plan? I agree with Bird that you need a written loan policy even if this is just one rolled in loan.

[NJ Mike]

23 minutes ago, hr for me said:

Agree that I would suggest reamortization, otherwise payroll is (probably) not going to be able to handle deductions on a differing schedule than its current pay frequency.  I would suggest making the final payoff date slightly earlier if it at all was going to bump up to the 5 year max.

Who thought this was a good idea without already having loans in the plan? I agree with Bird that you need a written loan policy even if this is just one rolled in loan.

Probably the broker!  Mike

[hr for me]

1 hour ago, NJ Mike said:

Probably the broker!  Mike

Or an HCE/exec who wanted to bring in a large loan at hire.....

[stephen]

I agree with the comments above.  A loan policy is needed.  It's best if the amortization schedule follows payroll.  Avoiding exceeding the five year maximum loan is also advised.

 

[LANDO]

Actually, I've had this come up more than once recently in asset purchase situations.  Sponsor purchases the assets of another company that has a plan, hires the EEs of the seller, and then accepts rollovers from the seller's plan, which may or may not be terminating.  Where the EEs of the seller have loan balances in their prior employer's plan it's pretty hard to tell them they either have to pay back the loans before they roll their balance over or the loan will be defaulted.  The solution, which we administrative types don't love, is to allow for rollovers of loan balances.  It is what it is.  Sometimes you just have to accommodate what makes sense.