Limiting loan amount and repayment period

Client has requested an amendment to reduce the maximum allowable loan amount to 50% of vested balance, but not to exceed $25,000.  Client also wants to reduce loan repayment period to 3 years.  Can these elections be made and the loan still satisfy 72(p)?

Any guidance you can provide would be greatly appreciated.

Why not? Isn't 72(p) the maximum allowable parameters? Why couldn't a plan, either via it's document or the loan program, enact more restrictive requirements? 72(p) requires loans amortized at least quarterly, but most plans amortize per pay period. Plans are not required to collect loan repayments via payroll withholding but nearly all of them do. 72(p) allows longer than 5 years for mortgages but some plans still limit to 5 year terms. Etc. Etc.

and you obviously cannot apply to existing loans or any that have been applied for prior to any such amendment being executed.

Do you see the 3 year repayment period as possibly discriminatory to NHCEs since they have less time to pay back so have a larger loan payment amount and because they make less than a HCE, the payment might be onerous?  Or could this argument apply for a loan that is 5 years long?

72(p) gives maximums, there is nothing that prohibits the plan form allowing smaller loans. I don't see a problem for future loans and loans are not protected benefits.

On 8/23/2022 at 1:25 PM, cpc0506 said:

Do you see the 3 year repayment period as possibly discriminatory

No. It is equally applied to all. Any loan repayment schedule will have a bearing on income and one's ability to repay, so HCEs are going to be better positioned in that regard any way you look at it.