deny new loan for an an adopting employer about to leave?

[AlbanyConsultant]

In a PEO MEP, we are aware that adopting employer X is going to leave the services of the MEP's PEO sponsor - sometime in the next 2-15 days.  A participant, looking to get ahead of things, has requested a plan loan.  The plan document does not allow repayments after separation.

Can the plan sponsor deny the transaction on the grounds that repayments will not be able to be made, so the loan isn't in 'good faith'?  Or do they have to let it go through and then it just defaults at the scheduled time?

I don't have any information about when X is going to move their money out of the MEP, but it's at least 45 days out.  Maybe more - sometimes, they just don't bother moving the old money out (which is a different problem, and not necessarily for today).

Thanks.

[QDROphile]

Before plan loans became automated, some thought was supposed to be given to the requirement that there be a reasonable expectation that the loan would be repaid. The requirement for repayment through payroll deduction went a long way toward satisfying the requirement for expectation of repayment. Perhaps the plan terms, or loan policy terms, retain the language of reasonable expectation for repayment as a condition of initiating a loan. If so, the fiduciary would seem to have reason for doubt about the loan repayment under the special facts known to the fiduciary in this case. It all depends on terms of the plan documents, including a loan policy, if any, and the fortitude of the fiduciary, who presumably has the authority to interpret and implement plan terms in its reasonable discretion. The reason for the expectation that the plan will be repaid is to make sure that limits on distribution are not circumvented by plan loans that then go into default.

[Peter Gulia]

Consider also whether another employment-based retirement plan might accept a rollover of a participant loan, even if the receiving plan does not initiate participant loans; or refuse a rollover of a loan, even if the plan provides participant loans.

https://benefitslink.com/boards/topic/81756-rolling-a-loan-from-one-plan-to-another-new-plan-doesnt-allow-loans/#comment-358430