Scenario: Plan has pooled/trustee directed investments. Participant loans are allowed. Loans are NOT treated as a segregated investment.

I'm looking at the mechanics of the loan itself rather than fiduciary issues. There is some disagreement in my office. (This is one of those days where I would gladly take a coffee-IV.) I believe it's still a participant loan secured by the participant's balance. The loan interest is credited to the plan trust as a whole rather than back to the participant account.

• Bud Weiser has a $100,000 account balance and borrows $50,000.
• For 2018, Mr. Weiser has repaid $10,000, $1,000 of which was interest.
• Before Mr. Weiser's account is credited for 2018 earnings, his 12/31/2018 balance is still $100,000 -- $59,000 in pooled investments and $41,000 as a participant loan.
• The $1,000 Mr. Weiser paid as loan interest is added to the plan trust gain/loss to be allocated among pro rata for all participant ending balances.
• Mr. Weiser's share of the pro rata investment earnings is limited to the $59,000 that is part of the pooled investments.

My office colleague believes the trust made the $50,000 to the participant as an investment, and it did not actually come from the participant's account balance.

• The 12/31/2018 balance for Mr. Weiser is $100,000 before it is adjusted for earnings.
• The loan should be tracked separately from Mr. Weiser's account balance in the plan.

Am I crazy, or is the opposing view describing an extension of credit (secured by plan participant assets?) as a plan investment rather than a participant loan?

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