DOL Finalizes Rule on Qualified Plan Loan Offset Rollovers

On December 8, 2020, the DOL finalized the rollover rules for qualified plan loan offset amounts. As background, when a plan loan must be paid immediately (usually due to default or termination of employment) and goes unpaid, the loan is treated as a deemed distribution or a loan offset. The deemed distribution would occur if the participant is able to take a distribution under the plan terms. An offset, or a reduction of the account balance by the unpaid portion of the loan, would occur if the participant is not yet able to take a distribution. Offsets are treated like an actual distribution for rollover purposes, meaning that the offset must generally be rolled over to a qualified retirement plan within 60 days to avoid taxation of the offset amount. (See our Compliance Corner article on the proposed rule for more information.)

The finalized rule essentially adopted the proposed rule, with one major modification. Specifically, the final rule changes the applicability date of the rule to apply to plan loan offset amounts treated as distributed on or after January 1, 2021. The proposed rule would’ve allowed for applicability immediately following the publication of the final rule. This gives employers additional time to come into compliance with the new regulations since they would first apply when employers file the 2021 Forms 1099-R in early 2022.

Employers should work with their accountant or other service providers to adequately address plan loan offsets for the 2021 year.

Rollover Rules for Qualified Plan Loan Offset Amounts (Final Rule) »