What must be determined about participant loans during an audit?

The determination of plan authorization for participant loans is critical during an audit because it ensures that any loans taken by participants are in compliance with the plan's established guidelines. Each retirement plan may have specific provisions regarding whether participant loans are permissible, under what conditions, and the terms surrounding these loans.

Auditors need to verify that the plan documents explicitly authorize participant loans, as this is a foundational requirement that supports the legality and compliance of the loans being issued. The absence of proper authorization could lead to significant compliance issues, potentially resulting in tax implications or penalties for both the plan and its participants.

In contrast, while loan amount restrictions, secured nature of loans, and loan repayment timeframe are all significant aspects related to participant loans, they are secondary to the primary requirement of authorization. These elements can only be evaluated after confirming that loans are permitted under the plan's rules. Thus, the focus on plan authorization establishes the legal framework within which all other aspects of participant loans must operate.