What to do with outstanding loans on termination of the Plan

[Guest PALAWYER]

When a defined contribution plan with outstanding loans is terminated- what must the plan do with respect to outstanding loans. Example- Company has 50 employees in a Profit sharing/401(k) plan. Two employees have 5 year $15,000 loans and one employee has a 5 year $30,000 loan. Now the plan is terminated and wants to give everyone a rollover distribution. (All company's assets are sold and employees are terminated) What do you do about the loans. Assume the plan document is silent- what should the plan document have said with respect to this-

What if all of the employees say they can't pay it all back if it were recalled? Please help.

[bzorc]

My opinion would be to see if the employees could pay back the loans before the plan liquidates. If they can, fine, if not, I think the loan becomes a distributable event to the employee.

[rcline46]

If the participants are going into another plan with another company (or this company) they could roll the loans to their new plan. If there is no new plan, the loans are distributed and taxes are due.