401k Loans - Accrue Daily Interest

[Guest Terry Trap]

I don't believe this is addressed anywhere in the reqs. Is anyone using a loan tracking or repayment system or process that calculates interest on a daily basis? We think "no", and normally we don't care about the exact date when a payment is made. All payments are through payroll deduction, so the repayment date is always close to the date. Do you only start tracking interest if the loan goes into default?

[J Simmons]

Terry,

After preparing the initial loan amortization schedule, we determine the interest on the loan based on the exact date of each payment in the history of the loan in three situations. You mentioned one, when the loan goes into default since you have to know the entire balance of unpaid principlan and accrued, but unpaid interest to report as a deemed distribution.

We also determine the interest in that way when the loan is to be paid off, either early at the borrowing participant's request or when it comes down to the final payment.

The third situation we do so is when determining benefits in the plan for annual reporting (Form 5500) purposes, per the plan's year-end valuation date. (We also use such valuation for the purposes of providing individual benefit statements--now that those are required quarterly if the plan permits participant direction of investment, it's not entirely clear if we can just use the most recent annual valuation date value or must re-determine once each calendar quarter.)