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Fiduciary Loan Regulations for 401(k) Plans: Best Practices for Plan Sponsors

Key Issues In Managing Participant Loan Programs and Defaults, Impact of Tax Reform on Loan Offsets, ERISA and IRS Compliance

Recording of a 90-minute premium CLE webinar with Q&A

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Conducted on Tuesday, August 7, 2018

Recorded event now available

or call 1-800-926-7926

This CLE course will guide ERISA counsel and plan sponsors on regulations governing 401(k) plan loans and defaults. The panel will discuss the challenges and issues faced by plan sponsors regarding plan loans under ERISA, implications of tax reform on plan loan offset amounts, techniques for handling participant loan defaults, fiduciary oversight, and best practices for plan sponsors.


ERISA regulations characterize participant loans as plan investments. The Department of Labor (DOL) takes the position that participant loans are subject to the fiduciary responsibility requirements as any other investment. Counsel and plan sponsors must focus on the challenges and fiduciary implications when providing participant loan programs, handling defaults, and fulfilling all regulatory requirements.

Many 401(k) plans allow participants to borrow amounts from their accounts and repay them through payroll deductions over time. Lack of procedures and administrative mistakes by plan sponsors can cause delays and ultimately lead to loan defaults, which result in unexpected tax consequences to plan participants and other issues prime for litigation.

Because participant loans are investments under ERISA, they are subject to the same prudent investment criteria and scrutiny by regulatory authorities requiring fiduciaries to review the investment to ensure it benefits the plan and meets reporting requirements.

ERISA counsel and plan sponsors must establish practical procedures to implement and review participant loan programs of 401(k) plans. Proper guidelines for managing loan defaults and complying with ERISA and IRS rules will limit claims regarding the fiduciary practices of plan loans.

Listen as our panel discusses the critical issues associated with participant loan programs in 401(k) plans, reporting requirements, fiduciary oversight and practical methods in managing defaults.



  1. Overview of ERISA and IRS rules and requirements for participant loan programs of 401(k) plans
  2. Common mistakes and challenges in managing 401(k) plan loans
  3. Fiduciary implications of participant loan programs
  4. Developing 401(k) plan loan procedures and correcting loan defaults
  5. Impact of tax reform on loan offsets
  6. Best practices for plan sponsors for evaluating loan programs and avoiding litigation


The panel will review these and other critical issues:

  • Fiduciary loan regulations of 401(k) plans under ERISA and IRS rules
  • Implications of tax reform on loan offsets
  • Establishing compliant participant loan programs
  • DOL guidance on participant loans
  • IRS rules and correcting 401(k) plan loan failures
  • Fiduciary implications in mismanaging participant loan defaults
  • Implementing procedures for effective loan program administration
  • Methods for minimizing participant claims against plan sponsors regarding fiduciary practices


Sewell, Christen
Christen Sewell

Covington & Burling

Ms. Sewell is a member of the firm’s Employee Benefits & Executive Compensation practice group. Her practice...  |  Read More

Woolston, William
William H. Woolston

Covington & Burling

Mr. Woolston’s practice focuses on all aspects of employee benefits and executive compensation for companies in a...  |  Read More

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