Rejected Loan Repayments

[Guest Joe401K]

We have a 401K plan that has participant loans. Some individuals that have loans outstanding do not have sufficient wages available during weekly pay periods to repay the loans per the terms of the loan agreement (i.e. they are getting a zero balance check after all taxes/deductions). Our TPA will automatically reject partial payments and refund the partial payment to us. If the amount is being withheld from employee's paycheck but not remitted until a "whole" payment can be made per the loan terms, is this considered a late contribution or prohibited transaction? Is there any difference if the full amount is withheld from a subsequent paycheck (i.e. two full loan repayments are made in the next pay period). Some questions have been raised and I was wondering if anyone here could help. Thanks!

[Guest Sieve]

I've never heard of a lender refusing to accept whatever payment is made, even if partial. Accepting such a payment does not somehow waive the fact that the payment is only partial. I wonder where in the promissory note, or otherwise, it indicates that only full payments will be accepted from the borrower-participant.

In any event, I would say that the employer's retention of a loan payment, even if not a full payment, is violative of the plan asset regs (whch apply equally to loan repayments just as they apply to deferrals).

I guess the TPA would have you not take any payment out except in pay periods when the compensaton to be paid exceeds the amount of a full payment.