Plan Operations
Plan Operations
Plan operations covers the transactions participants actually use-loans, hardships, QDROs, vesting distributions, and forfeitures-and the payroll and reconciliation work behind them. The exam tests whether you apply plan terms, tax rules, and spousal rights together.
Loans
- Maximum loan is the lesser of $50,000 (reduced by the highest outstanding loan balance in the prior 12 months) or 50% of vested account balance; a $10,000 floor applies.
- Loans must be amortized with level payments at least quarterly and generally repaid within five years, unless used to acquire a principal residence.
- Spousal consent is required if the plan is subject to QJSA rules.
Hardship
Hardship distributions require an immediate and heavy financial need and no other reasonably available resources. Safe-harbor events include certain medical expenses, purchase of a principal residence, tuition, prevention of eviction or foreclosure, funeral expenses, and casualty repairs.
QDRO
A QDRO is a domestic relations order that creates or recognizes an alternate payee's right to benefits. The administrator must review it promptly, determine qualification, and follow the plan's QDRO procedures.
Worked example
A participant with an $80,000 vested balance has an outstanding loan balance of $10,000. The 50% limit is $40,000. The $50,000 limit is reduced by the highest outstanding balance in the prior 12 months, $10,000, giving $40,000. The maximum new loan is $40,000.
Traps
Ignoring the prior-loan offset; treating a loan default as a distribution without tax reporting; accepting a hardship request without documentation; and treating a domestic relations order as a QDRO before reviewing it against the plan's procedures.