Deceased Participant's Outstanding Loan

[Nassau]

Participant has recently passed away and has an outstanding loan balance. The last payment was received on 01/28/2011, so the next payment is not due until 02/28 since they are on a monthly repayment frequency. The loan is still within the cure period (before the loan would be considered to be defaulted) the quarter following the quarter after the first missed repayment. If the distribution due to death form is not received by the beneficiary before the cure period ends, will we have to default the loan under the deceased participant's account, or should the loan remain in the deceased account until the distribution due to death is processed, no matter the date we receive the instructions from the beneficiary?

[rcline46]

It is probably way to early to know any answers. However, here are some questions:

Will the estate pay off the loan so the entire account balance be rolled over?

Will the benefit be paid out as installments, or over 5 years or less?

In most situations, the estate must be settled in nine months. You will need to have contact with the executor of the estate to start making decisions because the defaulted loan may become income to the estate, and a surprise to the executor.

[masteff]

Many plans do not permit beneficiaries to have loans (and consequently to make payments on outstanding loans), so such loans would get defaulted upon death of the participant. Need to look at what your plan allows re: loans and beneficiaries.