Loans from only 100% vested sources?

Can a plan have a provision in its loan program that loans are only available from sources that are 100% vested for the participant?

I'm thinking the answer is no. I don't think this would satisfy the requirement that loans be available on a "reasonably equivalent" basis. But I need to go back and re-look at 2550.408(b)(1)...

Well, maybe I was wrong in my initial thought. Looks like it could be ok depending upon facts and circumstances.

You can definitely restrict it to certain sources and I think it is reasonable to restrict it to 100% vested sources.

2 hours ago, Bird said:

You can definitely restrict it to certain sources and I think it is reasonable to restrict it to 100% vested sources.

It wouldn't be a BRF?  Some people have access to more sources for a loan than others.

20 minutes ago, BG5150 said:

It wouldn't be a BRF?  Some people have access to more sources for a loan than others.

I don't think so. This is an outdated example, but the best I can think of off the top of my head. If a sponsor has more than one plan (such as a money purchase plan) and a profit sharing plan, the participant's vested balance in both is used in determining the maximum loan amount available. But only one plan might actually allow for loans. If only the profit sharing plan allows for loans, then obviously the participant can't take a loan from Money Purchase dollars. I don't see how this is different from restricting sources within a single plan. 

But we do consider the vested balance in all of those partially-vested accounts, right?

Example:

Participant 50% vested

Deferral:  10,000

Match: 5,000 

PS:  5,000

Total:  20,000; vested 15,000

Available loan: 7,500

But what if half the vested balance is more than what's in the fully-vested account(s)?  What if there is no fully-vested money in there?

Example:

Participant 50% vested

Deferral:  0

Match: 5,000 

PS:  5,000

Total:  10,000; vested 5,000

Available loan: 2,500.  

But really zero because there is no money in a fully-vested source.

17 hours ago, BG5150 said:

It wouldn't be a BRF?  Some people have access to more sources for a loan than others.

I sure hope not because we do it all the time, and our document allows it.  It's not like it's a random thing that's happening, or employer discretion in deciding who has deferral money - that is determined by the participant.

17 hours ago, BG5150 said:

But really zero because there is no money in a fully-vested source.

Right and so be it.  And that's specifically why we would restrict loans to employee money (deferrals and rollovers, typically):  we are (or at least I am) old and cranky and don't like loans, and our clients don't typically want employees borrowing "their" (that is employER) money.

15 minutes ago, Bird said:

I sure hope not because we do it all the time, and our document allows it.  It's not like it's a random thing that's happening, or employer discretion in deciding who has deferral money - that is determined by the participant.

Same here.  My current pre-approved document allows for loan source restrictions, as did my my prior pre-approved document.  Both from big vendors that many of the folks on these boards use everyday.

3 hours ago, Bird said:

 

Right and so be it.  And that's specifically why we would restrict loans to employee money (deferrals and rollovers, typically):  we are (or at least I am) old and cranky and don't like loans, and our clients don't typically want employees borrowing "their" (that is employER) money.

I think there are two things to consider:

What sources are available to fund a loan and what sources determine the available amount of a loan.

So, in my cases above, #1 would only have $5,000 available and #2 would have no loan available matter how much vested money is int he other sources?

33 minutes ago, BG5150 said:

So, in my cases above, #1 would only have $5,000 available and #2 would have no loan available matter how much vested money is int he other sources?

No on #1.  50% of total vested balance (not the balance in the available sources) is the absolute loan limit, so the available loan for that participant is the lesser of the deferral source balance ($10K) or 50% of the total vested balance ($7500) so it is $7500.

Yes to #2.  No deferrals/no loan.

So, if we are excluding sources, we still use the vested amounts in the verboten buckets to determine max match, and the balance in the available sources can further curtail that...

6 minutes ago, BG5150 said:

So, if we are excluding sources, we still use the vested amounts in the verboten buckets to determine max match*, and the balance in the available sources can further curtail that...

Yes.

*Assume you meant loan

I did mean loans.  Thanks.

Unless the loan is $10,000 or less, Code sec. 72(p)(2)(A)(ii) says that the loan cannot exceed 50% of vested account balance. DOL reg. sec. 1.408b-1(f)(2) just says don't exceed 50% of vested balance unless you have security other than participant's account. So you have to restrict loan to only a portion of vested amount.