Under Rev Proc 2019-19, can we can correct a delinquent loan that has not yet been defaulted? The Rev Proc says that a “defaulted loan” is any loan that is not repaid in accordance with plan terms. Can SCP be used to correct a loan in which several loan payments were missed because the employer’s payroll messed up and failed to withhold the loan deductions? The cure period has not expired so there is no default yet.
The question arises because the Rev Proc states that it applies to “defaulted loans” and does not mention delinquent loans. My thought is that the term “defaulted loan” is being used differently than the conventional definition in the Rev. Proc. and we may correct a delinquent loan.
Thanks in advance for any thoughts.
Rev. Proc. 2019-19, Section 6.07(d) states: Defaulted loans. A failure to repay a loan in accordance with loan terms that satisfy § 72(p)(2) may be corrected by (i) a single-sum corrective payment equal to the amount that the affected participant would have paid to the plan if there had been no failure to repay the plan, plus interest accrued on the missed payments, (ii) reamortizing the outstanding balance of the loan, including accrued interest, over the remaining payment schedule of the original term of the loan or the period remaining had the loan been amortized over the maximum period that complies with § 72(p)(2)(B), as measured from the original date of the loan, or (iii) any combination of (i) or (ii).
