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Federal Register / Vol. 86, No. 3 / Wednesday, January 6, 2021 / Rules and Regulations
3. Definitions of Plan Loan Offset Amount, QPLO Amount, and Qualified Employer Plan Section 1.402c3a2iiiA of the QPLO proposed regulations provides that a plan loan offset amount is the amount by which, under plan terms governing a plan loan, an employees accrued benefit is reduced offset in order to repay the loan including the enforcement of the plans security interest in the employees accrued benefit. A distribution of a plan loan offset amount is an actual distribution, not a deemed distribution under section 72p.
Section 1.402c3a2iiiB of the QPLO proposed regulations defines a QPLO amount as a plan loan offset amount that satisfies two requirements.
First, the plan loan offset amount must be 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 from such plan because of the severance from employment of the employee. Second, the plan loan offset amount must relate 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.
Section 1.402c3a2iiiC of the QPLO proposed regulations define a qualified employer plan, for purposes of the QPLO amount definition, as a qualified employer plan as defined in section 72p4.

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4. Special Rules for QPLO
Determinations Section 1.402c3a2iv of the QPLO proposed regulations provides several special rules for purposes of determining whether a plan loan offset amount is a QPLO amount. First, the QPLO proposed regulations provide that 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 1.401k1d2. Thus, an employee has a severance from employment when the employee ceases to be an employee of the employer maintaining the plan.
Second, the QPLO proposed regulations provide that 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 plan loan repayment terms because of
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severance from employment 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.
Whether a plan loan offset amount is a QPLO amount is relevant to plan administrators because those administrators are responsible for reporting whether a distribution is a plan loan offset amount or a QPLO
amount on Form 1099R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., and furnishing that form to the taxpayer.5 In the QPLO proposed regulations, the Treasury Department and the IRS indicated that the proposed 12-month rule would assist plan administrators in identifying QPLO
amounts by providing a bright-line rule for determining whether a plan loan offset amount following a severance from employment satisfies the first requirement in 1.402c3a2iiiB
to be a QPLO amount.
The QPLO proposed regulations proposed to apply the subsequent final regulations to plan loan offset amounts, including qualified plan loan offset amounts, treated as distributed on or after the date of publication of a Treasury decision adopting the proposed rules as final regulations. The preamble to the QPLO proposed regulations also stated that taxpayers including a filer of a Form 1099R may rely on the proposed regulations with respect to plan loan offset amounts, including qualified plan loan offset amounts, treated as distributed on or after August 20, 2020, and before the date the regulations are published as final regulations in the Federal Register.
The Treasury Department and the IRS
received one written comment relating to the QPLO proposed regulations. No request for a public hearing was made, and no public hearing was held. After consideration of the comment, this Treasury decision adopts the QPLO
proposed regulations with one important modification relating to the applicability date.
5 The Instructions to the 2020 Form 1099R
provide that if an employees accrued benefit is offset to repay a loan a plan loan offset amount, the administrator should report the distribution as an actual distribution and not use Code L for deemed distributions in box 7. For a QPLO
amount, the Instructions to the 2020 Form 1099R
provide that the administrator should enter Code M
for QPLO amounts in box 7.

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Summary of Comments and Explanation of Revisions The commenter stated that the brightline 12-month rule in the QPLO
proposed regulations is a helpful approach in determining whether a plan loan offset amount is a QPLO amount, but expressed concern that recordkeepers may not currently have procedures to track a terminated employees date of severance or the oneyear anniversary of that date. To address this concern, the commenter recommended that the Treasury Department and the IRS i consider an alternative bright-line rule under which a plan loan offset amount is treated as satisfying the requirement in 1.402c 3a2ivB if the plan loan offset occurs by the end of the year following the calendar year in which the employee has a severance from employment, and ii delay by one year the effective date of the final regulations or, alternatively, provide for a one-year period of time during which a person responsible for reporting a QPLO
amount on Form 1099R will not be viewed as improperly reporting it, provided that a reasonable, good faith effort is made to determine if a plan loan offset is a QPLO.
With respect to the first recommendation, the Treasury Department and the IRS have considered the alternative bright-line rule suggested by the commenter, but have retained in the final regulations the 12-month rule in 1.402c 3a2ivB of the QPLO proposed regulations. Although the 12-month rule is a bright-line rule that may assist plan administrators and recordkeepers in satisfying their reporting obligations, it is also an interpretation of a statutory requirement that should apply to all taxpayers in the same manner. The alternative rule recommended by the commenter could result in significantly different treatment of participants based solely on when during a calendar year each participant severs from employment. For example, Taxpayer A, who severs from employment on December 31, 2020, could experience a plan loan offset during a 366-day period following the severance and be treated as having a QPLO and thus be eligible for the extended rollover rule, whereas Taxpayer B, who severs from employment one day later, on January 1, 2021, could experience a plan loan offset during a 729-day period and receive the same treatment.
With respect to the commenters second recommendation to delay the effective date of the final regulations, the Treasury Department and the IRS

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