loan defaults while employed

[JKW]

I have a plan that lays off employees during the winter. When the employee comes back we refinance their loan to be sure the finish the loan in the original time period. One participant came back and made a few loan payment but his loan need to be paid up by 6/1. He still has a $500 balance. He needs to pay off in full now or the loan defaults correct? It is a deemed distribution not an offset correct since he has not had a distributable event? This also limits him to not being able to take a new loan in the future right?

Also, I have a plan that stopped making payments on a participants loan b/c the participant could not afford to make the payments anymore. The plan just told us they did this months ago. The loan is in default now. Is this also a deemed distribution since the participant still works there?

[Guest chuckb]

I have a plan that lays off employees during the winter. When the employee comes back we refinance their loan to be sure the finish the loan in the original time period. One participant came back and made a few loan payment but his loan need to be paid up by 6/1. He still has a $500 balance. He needs to pay off in full now or the loan defaults correct? It is a deemed distribution not an offset correct since he has not had a distributable event? This also limits him to not being able to take a new loan in the future right?

Also, I have a plan that stopped making payments on a participants loan b/c the participant could not afford to make the payments anymore. The plan just told us they did this months ago. The loan is in default now. Is this also a deemed distribution since the participant still works there?

First, I'm not sure what refinancing the loans would accomplish. When a participant fails to make a loan repayment, the loan is defaulted. The cure period lasts until the last day of the quarter following the quarter in which the first payment was missed. If the participant hasn't caught up their payments by the end of the cure period, their loan must be reported as a deemed distribution. A loan balance that has become a deemed distribution must also be considered an outstanding loan when calculating the maximum amount of future loans.