Amendment to add loans and then amend to no longer allow it

I have a plan sponsor who would like to allow a loan for a NHCE participant who has fallen on hard times but is young and doesn't qualify for a "safe harbor" hardship. He would like to amend his plan to allow loans and then has asked how quickly he can amend to no longer allow it.  Is there a general rule of thumb for this?

Statutorily, could probably amend loans in and out in a vary narrow window, but I'd think about a better way to handle if at all possible. Technically, there would need to be an SMM for each amendment, which might create an HR issue. If you say no SMM is needed because, at the time required, no actual change to SPD language is in effect - I don't know if I'd want to argue that with DOL. I know it's an NHCE and the intentions are good, but doing such an amendment and (most likely) hiding it from everyone but the lone target just doesn't smell right. As gets said in this forum all the time, just because you can do something doesn't mean you should. I'm more concerned with the HR and overall employee relations issues that could come from this as opposed to any plan compliance problems - how come Johnny could get a loan last week/month/year but I can't? I've got a sob story too. Maybe allow loans for broader non safe harbor hardship reasons?

1 hour ago, CuseFan said:

Statutorily, could probably amend loans in and out in a vary narrow window, but I'd think about a better way to handle if at all possible. Technically, there would need to be an SMM for each amendment, which might create an HR issue. If you say no SMM is needed because, at the time required, no actual change to SPD language is in effect - I don't know if I'd want to argue that with DOL. I know it's an NHCE and the intentions are good, but doing such an amendment and (most likely) hiding it from everyone but the lone target just doesn't smell right. As gets said in this forum all the time, just because you can do something doesn't mean you should. I'm more concerned with the HR and overall employee relations issues that could come from this as opposed to any plan compliance problems - how come Johnny could get a loan last week/month/year but I can't? I've got a sob story too. Maybe allow loans for broader non safe harbor hardship reasons?

Thanks, this is super helpful. It's when I brought up that he would need to notify all participants of the change that he asked how quickly he could remove the provision after allowing it. As a TPA, our default is to only allow safe harbor hardships and I admittedly have no experience with non-safe harbor hardships but it sounds like I should research further to explore that as an option.  

If the employee is really that important to the employer, give them a bonus, forget about the plan, and get everyone back to work?

Depending on the amount of the desired loan, a bonus of that amount may not be feasible, but I've seen a lot of employers take that route if the amount is small. I've also seen employers actually loan the participant money instead.

As to the amendment, I'm usually on the conservative end of the spectrum for these things, and you've gotten valuable input already. I absolutely would not recommend hiding it so that only this employee can take advantage of it - as Cuse said, just because you CAN do something doesn't necessarily mean you should - a lot depends on the size of the plan. If it is a small plan, perhaps notify employees in advance that this loan window will be open only for a couple of days? Most people won't take a loan anyway. I don't know the dynamics of the situation.

Remember that if you modify the hardship withdrawal provisions to include non safe harbor reasons, you can't rely on self-certification for a withdrawal  of other than the safe harbor reasons.

Thanks all for your valuable feedback. From what I've gathered, the plan sponsor feels bad for the employee but just not bad enough to actually help her himself directly. He wants an option within the plan for her but doesn't want to make it permanent. His specific question was if he allows for loans, when can he terminate that option? It sounds like there really isn't a clear answer to this. It's a very small professional service organization with less than 10 participants.

2 hours ago, Belgarath said:

Depending on the amount of the desired loan, a bonus of that amount may not be feasible, but I've seen a lot of employers take that route if the amount is small. I've also seen employers actually loan the participant money instead.

As to the amendment, I'm usually on the conservative end of the spectrum for these things, and you've gotten valuable input already. I absolutely would not recommend hiding it so that only this employee can take advantage of it - as Cuse said, just because you CAN do something doesn't necessarily mean you should - a lot depends on the size of the plan. If it is a small plan, perhaps notify employees in advance that this loan window will be open only for a couple of days? Most people won't take a loan anyway. I don't know the dynamics of the situation.

Remember that if you modify the hardship withdrawal provisions to include non safe harbor reasons, you can't rely on self-certification for a withdrawal  of other than the safe harbor reasons.

The amount seems relatively small to me - about $5-$6k. I get the impression the plan sponsor doesn't want to help her himself.

8 hours ago, Belgarath said:

I've also seen employers actually loan the participant money instead.

I was going to suggest as well, but figured it wasn't an option because it is an obvious one that wasn't even mentioned.

Regarding non-safe harbor hardship, my thought was applying such criteria to loans, not withdrawals. So if someone has a (subjective) hardship where they can't get a distribution they could still get a loan. This would likely minimize usage and give the employer/plan administrator some discretion - but with that, added responsibility.

52 minutes ago, CuseFan said:

I was going to suggest as well, but figured it wasn't an option because it is an obvious one that wasn't even mentioned.

Regarding non-safe harbor hardship, my thought was applying such criteria to loans, not withdrawals. So if someone has a (subjective) hardship where they can't get a distribution they could still get a loan. This would likely minimize usage and give the employer/plan administrator some discretion - but with that, added responsibility.

That's a great idea. After much back & forth, he decided it was too administratively burdensome for him and told the participant she didn't have any options within the plan at this time.

3 years is my understanding for this situation.  Can't provide a cite, just believe this is the time frame.