Participant Loans

[Jilliandiz]

I have a client who took it upon herself to take a loan from the plan. However, she took $5,000 more than she was entitled too. What do I do now? Does she have to repay including interest and earnings, or does the $5,000 she wasn't entitled too get treated as a distribution?

Any ideas, before I get more annoyed?

[E as in ERISA]

Upcoming update to EPCRS should provide solution to excess loans.

[QDROphile]

Read section 72(p) and the related regulations for taxation, section 4975 for prohibited transactions and then consider remedies for disqualification because the plan was not operated in accordance with its terms.

[Belgarath]

I'm assuming that this person is a party in interest for reasons OTHER than her simply being a participant, so that the relief in Section 7©(1) of the revised VFC program is not available?

That being the case, I believe you have a prohibited transaction, with all normal penalties. It must be reported and corrected. EBSA has a online calculator now to assist a client with calculating the plan asset restoration amounts.

But even if they are a small plan, and don't have an ERISA lawyer, I'd still recommend they engage one here.