Q. Can a frozen plan of an employer that is no longer an “eligible employer” still allow new loans from the plan?
A. First, a frozen 403(b) plan can permit loans to the participants under that plan as long as the loan documentation permits the loans. As far as an “ineligible employer” that now has the frozen plan, it would depend on the circumstances. For example, if this was a non-profit 501(c)(3) organization that lost its tax-exempt status, then the employer should use the correction procedures under EPCRS to protect the tax-favored status of the contributions previously made to the plan. The correction procedures require that all contributions stop (which probably ties into the frozen plan) and then distributions are only permitted as defined by the plan and 403(b). Loans would still be permitted; however, you should review the loan policy to see who is responsible for the approval of loans and make sure this can still be done for the frozen plan.