Participant now in eligible class, can they take a loan?

 I have a union employee that used to participate in a non-union plan.  The employee is still employed at the company but no eligible now due to being union.  They just processed a loan from the non-union plan for this union employee.  Is this allowed?

Loan policy says : "Any Participant that is actively employed may apply for a loan from the Plan."

This person is a Participant due to the fact (at least) that they have a balance. And they are actively employed (so, thus can have payroll deductions). However, they are in an ineligible class. The loan policy does not address that.

In the absence of specific language to the contrary, based on the information given, I'd say it should be allowed.

Agreed. There is no statutory prohibition, and there appears to be no plan prohibition. Assuming the person is getting a paycheck from which loan payments can be withheld and assuming that is another loan condition/requirement, then it looks like all the boxes are checked for allowing the loan.

We see this happen frequently where participants switch from union to non-union and vice-versa.  The only hiccup it to make sure that the loan payment is being remitted to the recordkeeper and account/contract number that belongs to the non-union plan.  The loan payment will also need to be edited from the payroll report from the union plan to make sure the loan payment is not remitted to that plan.

Agree with the others.  Like lots of issues, this one can be solved by reading the plan documents.  That's what they are for.  If the employer wants to do it right, since the issue has been raised, the relevant plan fiduciary should make the formal loan decision and document it.  A plan loan is a plan investment, and therefore an investment decision.

On 6/29/2023 at 10:52 AM, BG5150 said:

And they are actively employed (so, thus can have payroll deductions)

One more thought - make sure amortization and payroll withholdings are done properly, as this person might now be on a weekly payroll whereas non-union/active participants (and typical loan) may be bi-weekly or semi-monthly.