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The multiple loan problem


As a 401(k) plan sponsor, you need to know that plan errors happen all the time. A 401(k) plan has so many moving parts, so that means something might break. The problem here is that while things can happen without control, you can control some errors by avoiding some problems.


One of the most avoidable errors you can avoid is offering multiple loans through your loan program. I believe you should offer only one loan maximum at all times. You’re not in the business of being a loan shark and I have seen so many errors happen because the plan sponsor or third-party administrator forgot that one or more loans weren’t being repaid, which may lead to defaulted loans and deemed distributions. Having just one loan outstanding at all times can help avoid that error.


There are many things with the plan you can’t control, but you should avoid any errors that are under your control.

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