Plan Documents Require Update After Tax Reform

The new law extends the time a participant has to repay loans from 60 days after an offset to the date their tax return is due.

Prior to the passage of the Tax Cuts and Jobs Act on December 22, 2017, when a participant with an outstanding loan from their defined contribution (DC) plan was terminated from their employment, their loan was immediately due, law firm Haynes and Boone notes in a blog post. If the participant was unable to repay the loan, their account balance would be offset by the amount of the outstanding loan and treated as a taxable distribution. The participant had up to 60 days to repay the loan.

The new law now extends that repayment period to the date the participant’s federal income tax is due for the year in which the plan loan offset occurred. Plan sponsors need to ensure that their plan documents, including the plan document, the plan’s loan policy, and the required notice of rollover eligibility, are updated to reflect this change in the law, Haynes and Boone’s Employee Benefits and Executive Compensation Practice Group notes.