I have a medical practice with a PS/401k plan. Three of the participants have ongoing loans. The medical practice is being bought by the local hospital effective 5/1/09. The hospital says since they are a 403(b), they cannot assume these outstanding loans.

The plan's loan policy says the outstanding loan balance is due and payable upon termination of employment.

Are there any other options for these participants with loans other than to either pay off or take as a taxable distribution?

Thanks.

The medical practice (albeit inactive as a going concern) could continue to be the sponsoring employer of the 401k plan until the loans are repaid per their original repayment schedules, and amend the loan policy to provide that a transfer of employment incident to the sale of the business's assets will not trigger the loans being due and payable. Once all the loans have been repaid, then terminate the plan.

I thought IRS allows loans to be rolled over from a QP to another QP. Why not to a 403(b)?

If the 403b doesn't allow loans can't it make amendment to allow the rollover loans only? At least until they are paid off.