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Recent IRS Snapshot Regarding Deemed Distributions for Participant Loans Reminds Employers of Risk of Plan Loan Errors

The IRS recently released an Issue Snapshot (the “Snapshot”) focusing on participant loans from retirement plans and when certain compliance errors could trigger deemed distributions with respect to such loans. Specifically, the Snapshot lists the following requirements, which if not satisfied, will cause a participant loan to be treated as a deemed distribution: Enforceable agreement requirement, which generally requires a participant loan to be a legally enforceable agreement (which may include more than one document) and the terms of the agreement demonstrate compliance with the applicable requirements of the Code. Maximum loan amount limit requirement, which generally limits the maximum amount of a participant loan to the amount specified under the Code. The Snapshot also noted the CARES Act allowed modifications to the loan limit for certain loans to “qualified individuals.” Repayment period requirement, which generally requires the repayment period of a loan be limited to five years, unless the loan… Continue Reading

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