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Loan Offsets at Termination

Practice Management

Editor's Note: This is the twelfth installment in a series concerning correcting plan loan failures.

Q. If an employee has terminated and has a loan balance and remaining funds in the plan but has not initiated a distribution of their plan, should the balance of the loan be offset or considered a deemed distribution? 

A. If the participant has terminated employment, the plan can effect a loan offset (distributable event) even if the participant does not initiate distribution regarding the balance of his/her account. Of course, the plan would need to provide for such an offset.

Editor’s Note: This content is taken from “Loans: Correcting Taxation, Qualification and Fiduciary Failures,” an April 15, 2020 ASPPA Webinar presented by Stephen W. Forbes J.D., LL.M. of Forbes Retirement Plan Consulting. 

Opinions expressed are those of the author, and do not necessarily reflect the views of ASPPA or its members.