COLLECTED WISDOM™ On 401k Loans

New Evidence on 401k Borrowing and Household Balance Sheets - Summary: This working paper posits that households might utilize 401k loans less than expected due to risk-aversion, self-control problems, and confusion about the potential gains, and suggest better financial education that clarifies the conditions under which 401k borrowing is advantageous. Finally, it suggests that allowing households to repay 401k loans gradually even after separation from their employers could improve household welfare by reducing the risks of 401k borrowing. Located at: Federal Reserve Board, June 2009. Click on headline for full article.

Court Finds 401k Loan Not a "Necessary Expense" - Summary: The repayment of a 401k loan may be a real debt obligation, but it's not a "necessary expense" for bankruptcy purposes, according to a recent court decision. Located at: Planadviser.com, June 2009. Click on headline for full article.

401k Plan Asset Allocation, Account Balances, and Loan Activity in 2007 - Summary: This report is an update of EBRI and ICI's ongoing research into 401k plan participants' activity through year-end 2007 (published December 2008). The report is divided into four sections: The first describes the EBRI/ICI 401k database; the second presents a snapshot of participant account balances at year-end 2007; the third looks at participants' asset allocations, including a new analysis of 401k participants' use of lifecycle funds; and the fourth focuses on participants' 401k loan activity. Located at: Investment Company Institute , December 2008. Click on headline for full article.

401k Loans: Deal or No Deal? - Summary: Conventional wisdom is that 401k loans are just a part of any well-rounded plan, but unfettered access to 401k accounts is counter to the plans' purpose of providing a way for participants to save successfully for retirement. Located at: TRI-AD , April 2008. Click on headline for full article.

401k Loans = Retirement Insecurity - Summary: The option of borrowing against a 401(k) is attractive; however, potential borrowers should be wary. Even in extreme situations, it is best for workers to seek other sources of capital before tapping their 401k accounts. Located at: National Center for Policy Analysis, April 2008. Click on headline for full article.

Responding to Requests for 401k Loans Without Providing Advice - Summary: Many employers are faced with this dilemma as employees use their 401k funds to pay down debts, purchase a home, or cover medical expenses. Offering a loan provision in your retirement plan is an important feature that provides employees access to their money when they need it. Located at: Financial Finesse , December 2005. Click on headline for full article.

Qualified Plan Loans: Guidelines for Operations - Summary: General guidelines for an employer who wants to add a loan feature to the business's qualified plan. Located at: Investopedia.com, September 2004. Click on headline for full article.

Sample Loan Policy - Summary: A sample loan policy and procedures prepared by the law firm of Reish Luftman McDaniel & Reicher. Located on: Reish Luftman McDaniel & Reicher . Click on headline for full article.

Sample Participant Loan Promissory Note - Summary: A sample Note prepared by the law firm of Reish Luftman McDaniel & Reicher. Located on: Reish Luftman McDaniel & Reicher . Click on headline for full article.

An Overview: 401k Loans - Summary: A quick overview and background on when 401k plan loans are allowed. Located on: 401khelpcenter.com. Click on headline for full article.

Reporting Defaulted Loans - Summary: Reporting defaulted participant loans is one of the more challenging aspects of plan administration. In order to report a defaulted loan properly, a practitioner must understand the difference between a defaulted loan treated as a deemed distribution and a defaulted loan that the plan offsets. Located on: SunGard/Relius, May 2004. Click on headline for full article.

Who is Responsible for the Employer's Failure to Withhold Loan Payments? - Summary: A recent Tax Court case addresses this issue. Since nearly all employers require the use of payroll deduction to repay participant loans, most practitioners have or will confront this issue. Located on: SunGard/Relius, May 2004. Click on headline for full article.

Rollover of Participant Loans - Summary: The distribution of a loan offset is an eligible rollover distribution. The participant effects the rollover of a loan offset by contributing the amount of the loan offset to an IRA or plan within the requisite 60-day period. Located on: SunGard/Relius, May 2004. Click on headline for full article.

DOL Guidance on Plan Loans After Sarbanes-Oxley - Summary: The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") prohibits a public company from extending credit, or arranging for an extension of credit, to a director or an executive officer of the company. The Department of Labor ("DOL") recently issued guidance that assures plan sponsors that they will not violate the ERISA rules for plan loan programs by applying the Sarbanes-Oxley restriction, the scope of which remains unclear. Located on: Groom Law Group, April 2003. Click on headline for full article.

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