PLANSPONSOR - October 2017 - 42
403(b) Q&A
Questions, Answered
Defaulted loans; SCOTUS on church plans; non-eligible investments
" (i) There is an arrangement among
the plan, the participant or beneficiary, and
the employer, enforceable under applicable
law, under which repayments will be made
by payroll withholding. For this purpose,
an arrangement will not fail to be enforceable
merely because a party has the right to
revoke the arrangement prospectively.
" (ii) The plan receives adequate security
from the participant or beneficiary that
is in addition to the participant's or beneficiary's
accrued benefit under the plan. "
Therefore, if the defaulted loan has
been repaid, neither payroll deduction
nor outside collateral is required in order
for the participant to re-borrow. However,
there is nothing that would prevent a
recordkeeper/investment provider from
prohibiting re-borrowing after default,
even if a loan has been repaid. And, of
course, a plan sponsor, via the plan document
or loan policy statement, can also
prohibit re-borrowing after default, even
following repayment.
Finally, some grandfathered contracts
are exempt from the loan default
rules entirely.
How Does SCOTUS' Ruling
Affect Church Plans?
Is Re-borrowing
Permitted on Repayment
Of a Defaulted Loan?
Q: I work for a plan sponsor where payroll
deduction and outside collateral cannot
be used for loans. We have a participant
who defaulted on a loan, but who later
paid it off in its entirety. Do Internal
Revenue Service [IRS] regulations allow
for re-borrowing in this situation? "
A: As is the case with many questions on
loans, we turn to the regulations under
42 PLANSPONSOR.com October 2017
72(p) to provide a response to your question.
Specifically, Treas. Reg. 1.72(p)(1),
Q&A 19 states the following:
" Additional security for subsequent
loans - If a loan is deemed distributed to
a participant or beneficiary under Section
72(p) and has not been repaid (such as by
a plan loan offset), then no payment made
thereafter to the participant or beneficiary
is treated as a loan for purposes of Section
72(p)(2) unless the loan otherwise satisfies
Section 72(p)(2) and this section and either
of the following conditions is satisfied:
Art by Nicole Xu
Q: Does the Supreme Court ruling favorable
to faith-based organizations mean
it may be possible for such organizations
to keep maintaining church plans
not subject to the Employee Retirement
Income Security Act (ERISA), as they have
in the past, or is there more to come on
this subject?
A: For now, yes, organizations such as
church-affiliated hospitals or faith-based
universities may continue to establish
and maintain church plans following
the Supreme Court (SCOTUS)'s ruling
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PLANSPONSOR - October 2017
Table of Contents for the Digital Edition of PLANSPONSOR - October 2017
Moving Money
403(b) / 457 Buyer's Guide
Best Practices for the IPS
The Middle Ground
Questions, Answered
Navigating RMDs
PLANSPONSOR - October 2017 - Cover1
PLANSPONSOR - October 2017 - Cover2
PLANSPONSOR - October 2017 - 1
PLANSPONSOR - October 2017 - 2
PLANSPONSOR - October 2017 - 3
PLANSPONSOR - October 2017 - 4
PLANSPONSOR - October 2017 - 5
PLANSPONSOR - October 2017 - 6
PLANSPONSOR - October 2017 - 7
PLANSPONSOR - October 2017 - 8
PLANSPONSOR - October 2017 - 9
PLANSPONSOR - October 2017 - 10
PLANSPONSOR - October 2017 - 11
PLANSPONSOR - October 2017 - 12
PLANSPONSOR - October 2017 - 13
PLANSPONSOR - October 2017 - 14
PLANSPONSOR - October 2017 - 15
PLANSPONSOR - October 2017 - 16
PLANSPONSOR - October 2017 - 17
PLANSPONSOR - October 2017 - 18
PLANSPONSOR - October 2017 - 19
PLANSPONSOR - October 2017 - 20
PLANSPONSOR - October 2017 - 21
PLANSPONSOR - October 2017 - Moving Money
PLANSPONSOR - October 2017 - 23
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PLANSPONSOR - October 2017 - 403(b) / 457 Buyer's Guide
PLANSPONSOR - October 2017 - 31
PLANSPONSOR - October 2017 - 32
PLANSPONSOR - October 2017 - 33
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PLANSPONSOR - October 2017 - 36
PLANSPONSOR - October 2017 - 37
PLANSPONSOR - October 2017 - Best Practices for the IPS
PLANSPONSOR - October 2017 - 39
PLANSPONSOR - October 2017 - The Middle Ground
PLANSPONSOR - October 2017 - 41
PLANSPONSOR - October 2017 - Questions, Answered
PLANSPONSOR - October 2017 - 43
PLANSPONSOR - October 2017 - Navigating RMDs
PLANSPONSOR - October 2017 - 45
PLANSPONSOR - October 2017 - 46
PLANSPONSOR - October 2017 - 47
PLANSPONSOR - October 2017 - 48
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