2 questions please:

1. Just to be perfectly clear (to myself I suppose after all my reading) - may I safely assume then that employee elective deferrals in 401k plans are a legitimate loan source (and includable in the "1/2 of vested interest" limit)?

2. I have read the approximate following statement in several sources: "The DOL regulations on loans do not prevent a participant from borrowing funds from their account, pledging 50% of the account, and then making a hardship withdrawal, effectively reducing the security below 50%."

Question: Does the "security" then have to be increased again from another source?

(Please let me know if you think I am missing or misinterpreting something.)

Thanks,

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lcoop

Yes and Yes

I agree with dsilver

I disagree, my answers would be yes to Q1 and no to Q2. Loan only has to satisfy the 50% of account balance at the time of the initiation of the loan.

I agree with Bill. Once the initial available loan amount was calculated and the loan issued, I have never monitored the account balance to ensure the 50% "rule". In fact, I've always understood the loan/hardship scenario to be a loophole allowing for depletion of an account balance to zero while still active...in certain situations.

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My apologies. Bill and Greg Self are correct. I did not reread Q2 and was thinking it was asking if the loan was still o.k., rather than if something had to be increased.

Thanks to everyone for your time and brainpower for a nervous newbie and my original question above. I eased myself out of the plan administration business about 10 years ago but, now, for better or worse, I have agreed to try to "brush-up" and advise on a few plans again. Of course back then we didn't have a wonderful help resource like THIS.

MEANWHILE - anyone know a good place where I can buy or acquire the following forms for 401k's?
a. hardship distribution forms;
b. plan loan forms;
c. plan loan procedures addendum document.

Thanks if anyone has time for more comments.

--the "lcoop"

Check out any of the following sources:

Pension Publications of Denver (Corbel)
CCH
Panel Publishers
RIA

All of them have resource materials that you can get either on CD rom or in notebook form. Also check the resource page/yellow pages elsewhere on this site.

If you're looking for freebies or "feesbies", check with your investment manager, recordkeeper, trustee, actuary, etc. They may be able to help you out with acceptable forms, in addition to already being familiar with your specific plan.