Status of loan when payments are withheld but not submitted

[Guest MarthaAdmin]

If loan payments are withheld from payroll but are not submitted to the trust, is the loan in default after six months (including the grace period)? and a taxable event to the participant? Is there any recourse for the participant.....

[mbozek]

Default only occurs if the participant does not make payments to repay loan. The employer has engaged in a prohibited transaction by not remiting the payments to the plan. The employer must remit the payments to the plan and correct its procedures for remitting the loan payments.