The regulations include some expected provisions and some surprises. The regulations expand upon these requirements and provide examples to clarify their application. Reasonably Equivalent Basis Plan loans will be considered to be on a reasonably equivalent basis to all participants and beneficiaries, provided certain conditions are satisfied. Also, loans may not be unreasonably withheld from any applicant. Many employers were concerned that the regulations will allow former employees to participate in loan programs.
Plans typically require participants to pay off their loans when they separate from service.
However, the IRS has stated that the DOL Advisory Opinion that allows certain former employees to be excluded from plan loan programs could result in discrimination under certain proposed Treasury regulations. Highly Compensated Employees Participant loans may not be made available to highly compensated employees, officers, or shareholders in an amount greater then the amount made available to all other employees. The regulations provide detailed written requirements that a loan program must meet. The DOL has indicated that this is not a complete list and applicable documents should be sufficiently complete to inform all borrowers of the procedures of the loan program. Although the plan document must specifically authorize the plan fiduciaries to establish a loan program, the other requirements and procedures listed above may be included in a separate written document referred to by the plan.