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PlanSponsorQuestion

Feb 13 2009, 12:55 PM

We utilize a loan policy that states a loan can be denied if it extends beyond the Normal Retirement Age set in the plan, which is 65.

The way I understnad that the loan policy is outside the document, and the document states the simple characteristics on the loan but says it will be administered by an outside loan policy.

Is it optional to the plan sponsor that a 65yr old EE can take a loan out. If not, where can I find concrete regulations?

Stretch it further... can a 65yrd old take a principal home loan for 15 years?

rcline46

Feb 13 2009, 01:22 PM

What does your loan policy say about repayment? If it must be from their paycheck, and the loan becomes due upon termination, then is it reasonable to issue a loan which is likely to be defaulted?

DOes the plan permit inservice W/D at 65? If so, would a distribution be better with increased deferrals to make up the W/D?

There is no regulation prohibiting loans that start or extend after 65. It is a matter of fiduciary judgment whether to issue a loan which is likely to be defaulted.

J Simmons

Feb 13 2009, 02:15 PM

Have you vetted out the issue of whether the limitation described violates ADEA since in restricts a right (loans) based on age, and impacts those age 40 and older vis-a-vis those under age 40?

Kevin C

Feb 13 2009, 03:06 PM

I think you have a serious problem with your loan policy.

QUOTE

2550.408b-1(b) Reasonably Equivalent Basis.

(1) Loans will not be considered to have been made available to participants and beneficiaries on a reasonably equivalent basis unless:

(i) Such loans are available to all plan participants and beneficiaries without regard to any individual's race, color, religion, sex, age or national origin;

(ii) In making such loans, consideration has been given only to those factors which would be considered in a normal commercial setting by an entity in the business of making similar types of loans. Such factors may include the applicant's creditworthiness and financial need; and

(iii) An evaluation of all relevant facts and circumstances indicates that, in actual practice, loans are not unreasonably withheld from any applicant.

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