Walter7020

The new plan trustee/administrator is not willing to file a corrected 1099r. They have reversed all accrued interest on all loans at the date of transfer to them and do not think any further action is needed. I am the plan auditor

They were deemed and distributed on a 1099R without any of the accrued interest. For one of the loans, the participant never made a payment on the loan and therefore no interest was ever paid and now never accrued. The loans are not significant but it has resulted in negative loan interest on the Form 5500 for the removal of the accrued interest recorded by the prior trustee.

There was a change in the plan trustee/administrator, The new trustee distributed loans that were not current with payments but did not include any of the accrued interest from the prior trustee in the 1099R (nor any interest through the date of distribution). I thought the appropriate correction would be to restore the loan balances equal to the accrued interest on date of transfer to the new trustee and distribute this balance (with accrued interest) to the participant. The new trustee says they "cannot go back and establish loan balances for these participants" and "they would have no way to track these loan balances in the future". I think this is a plan failure and if you are not going to restore/distribute the balances that the employer would have to remit the accrued interest to the plan. I cannot find anything on point for this. Any guidance for this issue would be greatly appreciated.