Loan Default Not Fault of Participants

[waid10]

We have a handful of participants that recently learned they defaulted on one of their plan loans. Here is the situation: we have a 403(b) and a 401(k) plan. For around a dozen participants, they had plan loans through both plans. The TPA handles the entire plan loan process. When the TPA set up the repayment, they only set up one of the loans (the 403(b)). The participant saw loan repayments coming out of the paycheck each pay period. However, the payment was only coming out for the 403(b) plan loan, not the loan through the 401(k). The TPA just notified these participants that they defaulted on their 401(k) plan loans.

Technically, it is the responsibility of each participant to know what their repayment amount should be. So I suppose it could be argued that each participant should have known that their repayment didn't look right. But practically speaking, people are only going to see that some amount is coming out. If it is slightly off of the correct amount, employees wouldn't notice.

I find more fault with the TPA in not setting up the repayments properly. But the TPA says we have to treat it as a default. There must be another option.

Any thoughts?

[Tom Poje]

possibly correct under VCP?

see comments on Accidently Defaulted Loans from the following web site:

http://www.prudential.com/media/managed/EP...-0606-final.pdf