Participant Loans In A Troubled Economy. SUNGARD Stephen W. Forbes, J.D. LL.M. Taxation requirements (Code §72(p)). Prohibited transaction requirements (Code §4975) and DOL Regs . Loans must comply with both sets of requirements. Two Sets Of Statutory Rules. Plan Documentation.
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Stephen W. Forbes, J.D. LL.M.
Prohibited transaction requirements (Code §4975) and DOL Regs.
Loans must comply with both sets of requirementsTwo Sets Of Statutory Rules
Irrevocable pledge and assignmentParticipant Documentation
More than 25 loans
annual percentage rate
APR includes loan fees
Total paymentsTruth In Lending
The highest outstanding loan amount within previous 12 month period
Exceeds current loan balance
If only one loan was outstanding, the adjustment equals the principal paid in the prior 12 months
Does not apply to 50% limit$50,000 Limit/Lookback Rule
Code §72(p) calculation:$50,000
- 7,500 ($48,500 - $41,000)
December 1, 2009 Loan limit = $42,500
December 1, 2009 Outstanding loan = $41,000
Available loan limit = $1,500
Does Jim’s loan violate amount limitations under Code §72(p)?
Plan may suspend for may receive?military service
Entire period of military service, not just 1 year
Military service does not count against 5 year repayment period
Employee must repay loan and accrued interest by end of 5 year period not counting the military service. Can use full 5 years even if original loan was shorter
Can use same payments with a balloon at the end
Can increase payments to avoid balloonMilitary Leave of Absence
No J&S plan: no spousal consent may receive?
J&S plan: need spousal consent
Binding on subsequent spouseSpousal Consent
Loans are not may receive?protected benefit
Employer may eliminate loansProtected Benefit
My repayment options: may receive?
Pay $1,600 and ER withholds $100/paycheck as planned
ER withholds $138.86/paycheck until April 30, 2013
Something in betweenLoan Example Correction