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Ask the Experts May 13, 2025
Can Plan Sponsors Reduce Plan Loan Minimums to Less Than $1,000?
Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.
Reported by PLANSPONSOR Staff
Q: I read in one of your Ask the Experts columns that raising the retirement plan loan minimum above $1,000 is probably not the best course of action. But what about lowering the loan minimum to, say, $500?
Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:
A: Unlike a loan minimum greater than $1,000, a minimum less than $1,000 is expressly permitted by Department of Labor regulations. Specifically, DOL Reg. Section 2550.408b-1(b)(2) states the following:
“(2) A participant loan program will not fail the requirement of paragraph (b)(1) of this section or § 2550.408b-1(c) if the program establishes a minimum loan amount of up to $1,000 provided that the loans granted meet the requirements of § 2550.408b-1(f).”
Thus, any minimum up to $1,000 is expressly permitted. However, as a practical matter, it is rare to see a $500 minimum—or any minimum less than $1,000—in a retirement plan. To utilize a different minimum, even if permitted under the service agreement with the recordkeeper, creates more potential for loan failures, since the recordkeeper would need to administer such a minimum as an exception to its general recordkeeping rules.
In addition, a lower limit would almost certainly increase loan utilization, which can negatively impact recordkeeper pricing. Thus, although permitted under the regulations, a plan sponsor should give some thought to these issues, in conjunction with outside ERISA counsel, should it wish to reduce its loan minimum below $1,000.
NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.
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