Plan loan request - participant lay off

Have a client with seasonal layoffs this time of year.  A participant wants to request a loan but is currently on lay off.  Since the loan policy requires repayments be made through payroll deduction, is the Sponsor ok with denying this loan until the participant returns to work?  With the nature of this business, the client should address this is in the plan loan policy but at this time has the stock loan policy from the Plan Doc, which does not specifically address this situation.  

Is it possible that the participant would be considered to be on a leave of absence which would allow them to suspend repayments under 1.72(p)-1 Q&A-9 (assuming such suspension is permitted by the plan)?

What happens when someone with an existing loan incurs a seasonal layoff? Like CBZ asked, are they considered on leave with repayments suspended? Or does the plan allow direct off-payroll repayments from the participant? Absent any specific plan/loan program documentation otherwise, I would likely treat similarly. But, ultimately, the Plan Administrator has the authority/obligation to reasonably interpret the plan.

My suggestion is to consider amending the plan to allow for repayment via electronic banking. Payroll deduction is so 20th Century. Electronic banking is less costly, less of a hassle for the plan sponsor, payments never need to stop, payments can coincide with the paycheck deposit, and not only can individuals continue loan payments during a leave of absence or layoff, they can also initiate a plan loan - even post-separation. This has considerable value to those whose employment is dislocated prior to age 55. 

You would want anyone who takes a loan to shoulder 100% of the costs of loan administration.  

May I suggest “automatic payment arrangement satisfactory to the Administrator”?

Wouldn't that feature have to be supported by the record keeper?  Do houses like Hancock or Voya or Empower support it?

Recordkeepers’ proposals I’ve evaluated have included offers to process banks’ electronic payments, at least when the loan obligor is no longer employed or otherwise has no wages from which a wage-deduction payment could be taken.

But consider that a service provider’s desires and capabilities might vary with a particular plan’s circumstances. Even within one recordkeeper, not every plan gets the same offer of services.

Consider the requirement to have an expectation of repayment before issuing the loan. When payment is by payroll deduction, there is a high level of confidence. If the loan request is on the eve of layoff, maybe not so much.