Plan Participant, 5% shareholder in C-Corp, will be leaving Company A to become LLP Partner in Company B. Needs dough to fund his share of the new Company B.

We plan on starting a new 401(k) Plan in Company B, which will accept rollovers (termination distributions). Since my guy will now be a partner in the LLP, is he barred from borrowing his rollover money?

He can borrow it before-the-fact right now..... It would just be cleaner to borrow from the new plan vs. the old.

Because it is rollover money, I don't think it's quite analguous (sp?) to the situation where a C-Corp stockholder becomes an S-Corp shareholder.

I guess I have trouble seeing why you see this as different from the S corporation scenario. In that scenario, a previously "valid" loan becomes a prohibited transaction because the shareholder now had a new status vs. the plan. This case appears identical, since will now have a loan to a partner of the LLP.

I guess my reasoning goes like this: It's known that when you merge an MP with a PS, leaving only the PS, the PS Plan must contain restrictions on withdrawing former MP money, and preserve bens, rights, features (BRFs). The money retains it's pension "Taint". Here, and in the C-Corp to S-Corp scenario, no actual distribution has taken place.

When a person takes a total distribution, they've made their choices as to BRFs, and that's it.

A Plan accepting a rollover of this distribution need not know the distributing plans benefit choices, nor type of plan. The "taint" is gone.

So, I ask, why couldn't one borrow this Untainted money?

The money isn't tainted. The participant is. If the participant has a certain status, the participant cannot have a good loan while the partipant has that status, no matter how the loan starts. That is why a person who has a good loan has a problem when the S ownership interest crosses the threshold or the C corp changes to an S corp. The good loan goes bad.