Rolling a loan from one plan to another - New plan doesn't allow loans

A new employee wants to roll his previous employer plan balance over to the plan .  Plan accepts rollovers.  BUT.. he has a loan at the old employer plan and the new plan doesn't allow loans.  Does that mean the loan can not roll in?

If he can't roll the loan in he'll have to pay ot off... or offset the balance and pay taxes as a taxable distribution.  Correct?

Correct on all counts. 

There is a difference between a plan not allowing loans (origination) and a plan holding a loan as an asset from a rollover. It is unlikely that a plan that does not originate loans will accept a loan as a rollover because the plan will not have the infrastructure to handle payments, but it is a remote possibility.

Our basic plan document gives the Plan Administrator the ability to decide in its discretion whether to accept a rollover of a loan note.  

I've never run into this before (a new employee wanting to roll in a loan).  Overall, 3 good answers!

1.   I am glad I at least had it right if he can not roll his loan in what his options are
2.   QDROphile didn't come right out and say "NO WAY" .  "it is a remote possibility" tells me that it can be done
3.   Bill Presson confirmed the possibility by saying "Our basic plan document gives the Plan Administrator the ability to decide in its discretion whether to accept a rollover of a loan note".  So I will now throw this question to the document company and see what they say.  Make sure that the proper box is checked.

If it turns out they can do this, I will tell them that loan payments must be payroll deducted. 

Thanks!!

Do they WANT to do this as an end-run around the plan's loan provisions?

Bri

It is not an end run. Loan origination as a plan feature is philosophically different and serves different purposes than accepting a loan rollover and servicing the loan. 

The difference might not be appreciated by the employees. I know of work places that would riot if the employees learned that a new eployee had a plan loan when they could not get them. The whys and wherefores would not be a consideration.

i am in the middle of the same thing. Company A boiught Company B (asset sale with no merger).  They do not want to have a loan feature but also do not want to "stick it" to their new employees.  So this plan will not offer new loans but will offer the option to roll loans in.  Perfectly normal, and no reason for any concern in my opinion. 

Some recordkeepers are willing to process a participant’s repayments made by bank transfers.

If that service is available, an employer/sponsor/administrator might (if a plan so provides, or a discretion is exercised) tolerate a rolled-in participant loan without involving payroll.

This is not advice to anyone.