3964 / How do renegotiations, extensions, renewals, or revisions work in the context of qualified plan loans?

Any loan balance outstanding on August 13, 1982 (September 3, 1982, in the case of certain government plans) that is renegotiated, extended, renewed, or revised is treated as a loan made on the date it is renegotiated, extended, renewed, or revised.¹A consolidation of two qualified plans is not a renegotiation, extension, renewal, or revision that would subject a loan to the provisions of IRC Section 72(p).²

Similarly, the transfer of a participant’s account balance, including an outstanding loan, in a trustee-to-trustee transfer is not treated as such a renegotiation, extension, renewal, or revision.³

A plan loan offset against the participant’s account balance when the plan terminated was treated as a constructive distribution, subject to income tax and penalties.⁴

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Planning Point: A qualified plan may not allow modifications to an existing plan loan. A new plan loan can be used to pay off an existing plan loan if the total of all plan loans does not exceed the maximum loan permitted (generally, the lesser of $50,000 or 50 percent of the account balance. See Q 3958.) Refinancing of a plan loan used to acquire the participant’s principal residence will be subject to the five year term. Because the loan is not used to acquire the residence, it does not qualify for an extended term. However, a plan loan used to repay a loan from a third party can qualify as a principal residence loan. (See Q 3960.)

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