I have a client that is toying with the idea of raising the plan's minimum loan amount from $1,000 to some higher amount. They are trying to reduce the quantity of loans. They have already restricted loans to one per participant but do not want to restrict loans by circumstance.

We explained that the plan would have to pass discrimination testing each year. We would charge quite a bit to do the testing. But they are still hanging on to the notion.

They want to know what would be the correction if they failed the test during some year. I haven't found any guidance to answer their question.

Is anyone familiar with type of circumstance?

The $1,000 minimum is from DOL regulations dealing with the requirement that loans be made available to all parties in interest on a reasonably equivalant basis. A minimum above that amount would violate that requirement in my opinion and make all loans that were made prohibited transactions.