"If the participant is not eligible for a distribution under the terms of the plan, a distribution would be grounds for disqualification (failure to follow plan terms) and the fiduciary could have liability (same reason)."
Being eligible for a distribution and defaulting on a loan are not exactly the same thing (unless, as previously mentioned, a loan was taken and not a single payment was made) I found myself in a situation where I had to default on my loan that I had been paying for three years. I simply asked my payroll person to stop withholding payments and it was done immediately and without question. I figured I would be given a scolding but they spared me that, perhaps because I was upfront about my understanding of the consequences of such. I also read my loan paperwork which explicitly stated that I could revoke permission to withhold funds.
