Participant loans - part of a vested balance or no?

[blguest]

Based on documents from several different plans, I've operated under the assumption that a participant's non-defaulted loans from a DC plan reduce the vested portion of a total account balance, even though they do not reduce the overall total account balance for other purposes, such as for calculations of assignments to alternate payees (except where the loans would limit the assignable amount), because non-defaulted loans are considered assets of an account, even if they reduce the vested portion. Am I wrong, or do different plans handle this in different ways?

[fmsinc]

First you need to understand that a DC loan is not a loan at all, at least not in the way we think of loans from a lender.  If you take a loan from your 401(k) you are borrowing the money from yourself.  When you pay it back you are paying it to yourself and you are paying the interest to yourself.  It is more like taking $20 from the cookie jar in the kitchen on Monday and paying back $21 the following Monday. The only penalty is that the outstanding "loan" will not be adjusted for earnings or losses - so  for all intents and purposes it is not part of your vested accounts. 

If you are dealing with QDROs you need to state whether or not the computation of the Alternate Payee's share includes (disregards) the loan or excludes (net out) the loan. 

If you retire and take a distribution the distribution will be net of the loan balance remaining due and will be treated as a taxable event.

David