Subscribe Now!
Free Daily News, Jobs, Webcasts, Discussions
Display and Distribute
Your Job Openings
COVID-19 News
COVID-19 Webcasts

Featured Jobs

Senior Retirement Plan Administrator

Goldberg, Swedelson & Associates
(Telecommute / Encino CA)

Goldberg, Swedelson & Associates logo

Defined Contribution Plan Administrator

401k America
(Telecommute / Chino CA)

Defined Benefits Combo Cash Balance Consultant

Loren D. Stark Company (LDSCO)
(Telecommute)

Loren D. Stark Company (LDSCO) logo

Defined Contribution Administrator

PACETPA
(Telecommute / Clovis CA / Las Vegas NV)

PACETPA logo

Trust Funds Accountant

RFK Medical Plan/JDLC Pension Plan
(Keene CA)

Client Service Manager

July Business Services
(Telecommute / Waco TX)

July Business Services logo

5500 Specialist

401K Generation
(Altamonte Springs FL)

401K Generation logo

Director, Retirement Benefits

Wespath Benefits and Investments
(Telecommute / Glenview IL)

Wespath Benefits and Investments logo

Manager, Defined Contributions Administration

Definiti
(Telecommute / The Woodlands TX / University Place WA / Dallas TX / Erie PA / Canonsburg PA / West Palm Beach FL)

Free Daily News and Jobs

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Controlled Groups and Loans

(Posted December 6, 2002)

Question 240: Bill participates in a plan sponsored by X Inc. and a plan sponsored by Y Inc. X and Y are in a controlled group. He has a $20,000 vested benefit in the X plan and $30,000 in the Y plan. He just borrwed $5,000 from the X plan and wants to know how much he can borrow from the Y plan. Does the fact that X and Y are a controlled group affect things?

Answer: Yes, very much so. The two corporations are considered a single business for purposes of the 72(p) loan rules. (See Who's the Employer, 3rd edition, Q 10:22.)

So we must aggregate X's plan and Y's plan to determine if the loan limit is violated. The total vested benefit is $50,000, so the loan limit is $25,000. Bill already has $5,000 outstanding, so he can borrow another $20,000 from either plan without violating the 72(p) loan limit.

Having said that, the lending plan would have to make sure that the loan is adequately secured, and might require security other than the participant's account to secure the loan. Bill cannot, for example, use his interest in the Y plan to secure a loan from the X plan. Under DOL regulations, only one half of a participant's vested benefit can be deemed to be security for a loan. Suppose Bill decides to borrow the $20,000 from plan Y. Bill could pledge his interest in the Y plan as security for the loan, but that interest could secure only $15,000. Bill would need to come up with additional security to satisfy the DOL's prohibited transaction exemption requirements.

I will be discussing participant loans in light of the newly finalized IRS regulations (which open the door for credit card loans), on two webcasts sponsored by SunGard Corbel on Wednesday, December 18. Click here for more information.


Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.


Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2020 BenefitsLink.com, Inc.