Taking A Loan While On Leave of Absence

Is there anything that restricts a participant to take a loan while they are out on a leave of absence?  The loan specifically states that all repayments must be made via payroll deduction, so the thought is that it naturally restricts it.  The Trustees are asking if there is anything more specific, though.

Thanks in advance!

Loan payments can be suspended while a participant is on an unpaid leave of absence for a period of up to one year, so assuming that they expect the participant to return to work within one year, I would say that it probably is allowable, unless the plan's loan program doesn't allow for such a suspension. The loan would need to be amortized starting when the participant returns to work, including interest through the end of the leave of absence, to be fully repaid no later than 5 years after the loan origination date.

I agree with CB Zeller that it is possible as long as the plan permits them and the accounting is consistent with regulations.  I have seen situations where a participant goes on LOA, the plan's recordkeeper automatically defaults the loan at the end of a quarter after a quarter when no loan repayments were received, and the recordkeeper adamantly refuses to reverse the default.  I suggest if the plan is going to allow the loan, the Trustee's should confirm up-front and document in writing with the recordkeeper that the loan will not be defaulted automatically.  It's a PITA to do this, but arguing with the recordkeeper after the fact is a bigger pain.

Thanks!  I believe the fear is that the person on leave has no plan on returning to work, so they would ultimately be taking a distribution, in essence, that wouldn't be allowed otherwise.

Is the Plan allowed to have any employee on leave sign something stating that they intend to return to work, and understand what will happen with their loan (re-ammortizing upon their return), in order to take the loan?

If they're not expected to return to work, aren't they terminated? Wouldn't they be eligible for a distribution then?

Plan can allow terminated participants to take loans (most don't).  The hang up with that in this case is the requirement to repay by payroll deduction and using the LOA as an end-around on that requirement.  The Plan Administrator should consider whether the employee is truly on LOA by looking at how all of the company's benefits (including H&W, disability,...) are treating the employee.