Treatment of outstanding loans in plan merger or trust to trust transf

[Guest LMalone]

The IRS has issued guidance re: direct rollovers of account balances containing loan notes and have said that the loan will not be treated as a taxable distribution if the note is included in the rollover, the borrower acknowledges the change in obligee, and the receiving plan accepts loans.

Question: Is there similar guidance in the case of a trust to trust transfer (no distributions permitted due to our beloved same desk rule) or a plan merger?

Thanks.

[Kirk Maldonado]

What is your specific concern?

[Guest LMalone]

The receiving plan sponsor seems to think the loans will become a taxable distribution. The transferring plan wants to transfer all assets and liabilities representing the affected participants' interest in the plan in a trust to trust transfer. The transferring plan is continuing. The plan sponsor is a large corporation and sold all of the assets of one of its subs to a partnership.

So I guess the concern is: Is a trust to trust transfer of the loan notes be permitted or must they be deemed in default by the transferring plan?

Thanks.

[Guest long]

No -- the loan need not be deemed in default. The transferring plan can simply assign the loan note. For IRS private letter rulings re transfer of plan loans, see PLRs 9729042, 96117046 and 9043018.