Basis

[FAPInJax]

How are administrators handling loans that are defaulted???

For example, consider the following:

A plan does not provide for post-tax contributions. HOWEVER, a participant who has taken a loan, defaults on the loan but then decides to repay (for some unknown reason).

I believe this repayment is post-tax money which creates a basis in the plan.

First, is the repayment prohibited because the plan does not permit post-tax contributions???

Second, IF the repayment is NOT prohibited, then it creates a basis - correct??? When is the basis recoverable???

Another question regarding basis.

A plan permits post-tax contributions. The participant does a MAHVELOUS job of investing (in Enron or something) and their contribution of $1,000 is now worth $100. The participant elects to take a distribution of the post-tax money which comes out tax free because his basis of $1,000 covers the distribution. What happens to the remaining $900???? Is it ever recoverable????

Many thanks in advance to any and all respondees!!!!

[QDROphile]

A loan payment is not a contribution. A plan that does not permit after-tax contributions does not prevent loan payments after default and deemed distibution. I wouldn't want to be the fiduciary that turns away loan payments (did the fiduciary make a reasonable determination about not enforcing the loan in the first place?).

The basis is recoverable upon distribution. I venture, without great confidence, that the "contract" is the defaulted loan balance and the earnings would be calculated on that amount, starting with the post-default loan payments.