loan payments made through payroll deduction but employer failed to send payments to trust account

[eilano]

A partipant took out a loan and loan payments were made through payroll deduction. However, the employer failed to transmit the payments to the trust account. Should a 5330 be filed? What should the plan sponsor do?

[rcline46]

Yes a 5330 should be filed. It is the same as not transmitting deferrals. Interest needs to be calculated on each late deposit.

[Lori Friedman]

You might want to read ERISA Opinion Letter 2002-02A.

Unlike employee contributions, participant loan payments aren't specifically subject to Dept. of Labor Reg. Sec. 2510.3-102. DOL has advised, however, that loan payments become plan assets as soon as they can reasonably be segregated from the employer's general assets. If the employer fails to remit loan payments, the plan has extended credit to a party-in-interest (ERISA) and disqualified person (Internal Revenue Code).