overpayment of loan repayments

[Guest mk2308]

what is the best way to handle overpayment of loan repayments?

[david rigby]

Just guessing, but according to the terms of the loan?

[Guest mk2308]

The loan policy does not address overpayments.

[Belgarath]

Interesting question. It might possibly depend upon what caused the overpayment. For example, was it a payroll withholding error? Or did the participant write out a check for an incorrect amount? Etc.? And was it an overpayment on the final payment, or are there still additiuonal payments to be made? Was it a one-time occurrence, or has it been regular?

[Guest mk2308]

The employer kept $XXX that belongs to the employee. The employee was therefore underpaid, and the employer owes the employee $XXX and he should be made whole outside of the plan. The other thing that happened was that the employer contributed $XXX to the plan. There may be an error in the way the contribution was allocated within the plan, but that would be corrected by reallocating the contribution correctly. A distribution, on the other hand, would violate the plan's terms.

Am I thinking correctly?

[R. Butler]

Given that your loan policy doesn't address it I tend to agree with Belgrath, it depends on the facts.

Assuming this was the last payment & there are no other outstanding loans; I probably wouldn't have an issue with returning the excess to the trustee as a mistake of fact.

[JanetM]

This happens to us all the time. Participant makes lump sum payment to pay off loan and we take one or two more deductions before we get the wrap back from the recordkeeper. The record keeper can't post payments to loan if it is paid off so the funds are returned to the employee in another paycheck.