Is there a limit on the number of loans which a participant can have?

[R. Butler]

Is there a limit on the number of loans that a participant can take? Another administrator told me that the IRS recently limited the number of loans per participant to two.

I have not seen anything indicating that there is a legal limit on the number of loans which a participant can take.

[wmyer]

I also have never seen a legal maximum limit. The plan document may specify a limit, however.

[Steve72]

I think the 2000 proposed regulations have a maximum of two loans in a given year, but I don't know that there's an overall maximum.

[R. Butler]

Steve,

Do you have an exact cite on the 2 loans per year limit? I have reviewed the final loan regs issued 7/31/00 and I just don't see that limit. I am probably just missing it.

Thanks

[Steve72]

R. Butler:

It's in Q-A 20, Paragraph (3). Just to be clear, it doesn't prohibit the third loan, but it makes it a deemed distribution.

[Alan Simpson]

I have looked at the Final Regulations and Question 20, which deals with mutiple loans, does not have an answer. I agree that Question 20 in the propsed regs did have an answer.

[Guest Lynn Banks]

Is there a limit for multiple loans if it's for tuition purposes?

[bzorc]

Wow, I administered plans where there were 9 loans outstanding (the limit our recordkeeping system allowed, the participants would have taken more if our system had been accomodating)at once!!! What would happen to these guys if you were only allowed 2?

[Guest KathleenH]

Has anyone seen anything formal from a technical resource showing that the limit is either 2 loans maximum, current or new, or 2 new loans per year not considering existing loans? I've gotten two different options from two ERISA attorneys, both highly reputable. One says that there is a limit of two loans including any loans outstanding at the beginning of the 12-month period (plan year). The other says that the limit is two new loans in the year, not to include any outstanding at the beginning of the 12-month period (plan year). I can't find find answer in any technical resources.

[R. Butler]

As some of the above comments indicate the proposed loan regulations did indicate a limit of 2 loans given per year. The final regulations did not contain that provision. Therefore, we have taken the position that there is not a legal limit to the number of loans that can be taken in a year.

[Bob R]

The relevant portion of Question 20 of the proposed regulations is below and, as pointed out, it limits loans to 2 per year. This wasn't in the final regulations because both the proposed and final regulations were issued on the same day. It's still possible these proposed regulations will be finalized. But, unless I overlooked it, there isn't anything in the proposed regulations stating that they can be relied on. Thus, I agree that right now there is no legal limit on the number of loans that can be made to a participant.

(3) Multiple loans. For purposes of

section 72(p)(2) and this section, a loan

to a participant or beneficiary shall be

treated as a deemed distribution if two

or more loans have previously been

made from the plan to the participant or

beneficiary during the year. This

limitation applies on the basis of a

calendar year unless the plan applies

this limit on the basis of the plan year

or another consistent 12-month period.

[R. Butler]

The proposed regs. state that they would take effect on the January 1 at least 6 months following the date they were finalized.