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Postponing Accrual of Loan Interest

Q. Given the current IRS/Treasury changes to allow loan repayments to be postponed until Dec. 31, 2018, does this also stop accrual of the loan interest?

A. A plan may permit loans to affected participants, even if the plan does currently contain a loan provision, provided the plan is amended no later than the end of the first plan year beginning after Dec. 31, 2018. The administrative procedures related to loan documentation is also relaxed under the relief. For example, if the loan policy only permits loans for ‘hardship’ reasons, this would be an exception. The plan administrator must make a good-faith diligent effort to comply with those requirements; and as soon as practicable, the plan administrator must make a reasonable attempt to assemble any forgone documentation.

Announcement 2017-11 indicates that the basic rules of 72(p) must be complied with — with few exceptions. And specifically spoke to the 50% limit and the $50,000.

The Disaster Tax Relief and Airport and Airway Extension Act of 2017 signed into law on Sept. 29, 2017, permits loans up to $100,000/100% of the balance and payments may be delayed up to one year. But the original term of five years apply and the accrual of interest even if they are not paying on the loan for a year (meaning the ‘reasonable interest rate’ rule is still in effect).