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Federal Register / Vol. 86, No. 3 / Wednesday, January 6, 2021 / Rules and Regulations
or within a specified period thereafter.
A distribution of a plan loan offset amount is an actual distribution, not a deemed distribution under section 72p.
B Qualified plan loan offset amount.
For purposes of section 402c, a qualified plan loan offset amount is a plan loan offset amount that satisfies the following requirements:
1 The plan loan offset amount is treated as distributed from a qualified employer plan to an employee or beneficiary solely by reason of the termination of the qualified employer plan, or the failure to meet the repayment terms of the loan because of the severance from employment of the employee; and 2 The plan loan offset amount relates to a plan loan that met the requirements of section 72p2
immediately prior to the termination of the qualified employer plan or the severance from employment of the employee, as applicable.
C Qualified employer plan. For purposes of section 402c and this section, a qualified employer plan is a qualified employer plan as defined in section 72p4.
iv Special rules for qualified plan loan offset amountsA Definition of severance from employment. For purposes of paragraph a2iiiB1 of this section, whether an employee has a severance from employment with the employer that maintains the qualified employer plan is determined in the same manner as under 1.401k 1d2. Thus, an employee has a severance from employment when the employee ceases to be an employee of the employer maintaining the plan.
B Offset because of severance from employment. A plan loan offset amount is treated as distributed from a qualified employer plan to an employee or beneficiary solely by reason of the failure to meet the repayment terms of a plan loan because of severance from employment of the employee if the plan loan offset:
1 Relates to a failure to meet the repayment terms of the plan loan; and 2 Occurs within the period beginning on the date of the employees severance from employment and ending on the first anniversary of that date.
v Examples. The following examples illustrate the rules with respect to plan loan offset amounts, including qualified plan loan offset amounts, in this paragraph a and in 1.401a311, Q&A16, and 31.3405c1, Q&A11, of this chapter. For purposes of the examples in this paragraph a2v, each reference to a plan refers to a
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qualified employer plan as described in section 72p4.
A Example 1. 1 In 2020, Employee A has an account balance of $10,000 in Plan Y, of which $3,000 is invested in a plan loan to Employee A that is secured by Employee As account balance in Plan Y. Employee A has made no after-tax employee contributions to Plan Y. The plan loan meets the requirements of section 72p2. Plan Y does not provide any direct rollover option with respect to plan loans. Employee A severs from employment on June 15, 2020. After severance from employment, Plan Y
accelerates the plan loan and provides Employee A 90 days to repay the remaining balance of the plan loan.
Employee A, who is under the age set forth in section 401a9CiII, does not repay the loan within the 90 days and instead elects a direct rollover of Employee As entire account balance in Plan Y. On September 18, 2020 within the 12-month period beginning on the date that Employee A severed from employment, Employee As outstanding loan is offset against the account balance.
2 In order to satisfy section 401a31, Plan Y must make a direct rollover by paying $7,000 directly to the eligible retirement plan chosen by Employee A. When Employee As account balance was offset by the amount of the $3,000 unpaid loan balance, Employee A received a plan loan offset amount equivalent to $3,000 that is an eligible rollover distribution. However, under 1.401a311, Q&A16, Plan Y
satisfies section 401a31, even though a direct rollover option was not provided with respect to the $3,000 plan loan offset amount.
3 No withholding is required under section 3405c on account of the distribution of the $3,000 plan loan offset amount because no cash or other property other than the plan loan offset amount is received by Employee A
from which to satisfy the withholding.
4 The $3,000 plan loan offset amount is a qualified plan loan offset amount within the meaning of paragraph a2iiiB of this section.
Accordingly, Employee A may roll over up to the $3,000 qualified plan loan offset amount to an eligible retirement plan within the period that ends on the employees tax filing due date including extensions for the taxable year in which the offset occurs.
B Example 2. 1 The facts are the same as in paragraph a2vA of this section Example 1, except that, rather than accelerating the plan loan, Plan Y
permits Employee A to continue making
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loan installment payments after severance from employment. Employee A continues making loan installment payments until January 1, 2021, at which time Employee A does not make the loan installment payment due on January 1, 2021. In accordance with 1.72p1, Q&A10, Plan Y allows a cure period that continues until the last day of the calendar quarter following the quarter in which the required installment payment was due. Employee A does not make a plan loan installment payment during the cure period. Plan Y
offsets the unpaid $3,000 loan balance against Employee As account balance on July 1, 2021 which is after the 12month period beginning on the date that Employee A severed from employment.
2 The conclusion is the same as in paragraph a2vA of this section Example 1, except that the $3,000 plan loan offset amount is not a qualified plan loan offset amount because the offset did not occur within the 12month period beginning on the date that Employee A severed from employment.
Accordingly, Employee A may roll over up to the $3,000 plan loan offset amount to an eligible retirement plan within the 60-day period provided in section 402c3A rather than within the period that ends on Employee As tax filing due date including extensions for the taxable year in which the offset occurs.
C Example 3. 1 The facts are the same as in paragraph a2vA of this section Example 1, except that the terms governing the plan loan to Employee A provide that, upon severance from employment, Employee As account balance is automatically offset by the amount of any unpaid loan balance to repay the loan. Employee A
severs from employment but does not request a distribution from Plan Y.
Nevertheless, pursuant to the terms governing the plan loan, Employee As account balance is automatically offset on June 15, 2020, by the amount of the $3,000 unpaid loan balance.
2 The $3,000 plan loan offset amount is a qualified plan loan offset amount within the meaning of paragraph a2iiiB of this section.
Accordingly, Employee A may roll over up to the $3,000 qualified plan loan offset amount to an eligible retirement plan within the period that ends on Employee As tax filing due date including extensions for the taxable year in which the offset occurs.
D Example 4. 1 The facts are the same as in paragraph a2vA of this section Example 1, except that Employee A elects to receive a cash distribution of the account balance that remains after the $3,000 plan loan offset
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