The plan document governs whether plan loans are allowed or not. A review of the Summary Plan Description will say if loans are allowed. Speak with the benefits / HR person in your company and if they don't know ask for the name of the Third Party Administrator for the plan.

They can state that the plan may be in blackout.. meaning no you can't touch your money. THey can also limit what funds you may take a loan from.. So if the majority of the money is in that fund, and they put a freeze on it, it will lessen the amount you may be able to borrow. If almost all of you money is in that fund, you may not be able to borrow anything. THey can also, at any time, stop allowing loans from the plan. They would just need to file an amendment to the document. A large Pharmacy/ drug store plan, does not allow loans from company stock. so unless the participants move the money out of that stock, they usually cannot fund a loan.. and they only allow them to move it at the end of a quarter (four times a year). It is your money.. but it in THEIR plan, so yes they can tell you what you can and cannot do with it.

Unfortunately a company can do that as they govern the rules of their 401k plans. Seems as if they havent got alot of available funds and therefore they are freezing people's money and their ability to take loans from their 401k plan as a result.