Defaulted Loan

[Guest NPS Darren]

We have a takeover plan in which the prior TPA was carrying on the books a defaulted loan for an existing employee. The loan was defaulted in 2006 and a 1099 was issued in January 2007 for the amount of the default. How long should you continue to carry a defaulted loan like this? This employee is still employed to date, we have no idea why he never made any repayments.

[rcline46]

You have to keep it forever, as it may affect amounts of future loans.

[Guest NPS Darren]

You have to keep it forever, as it may affect amounts of future loans.

Let's assume he terminates and is paid out his entire balance, I would assume that we would take it off the books then.

The amount that would be reported on a 1099 would just be the balance of the account paid out because a 1099 was already issued for the defaulted loan.

Would that be accurate?

[Lou S.]

Yes that would be accurate.

[Tom Poje]

and for purposes of the 5500 you do not show it because it was distributed years ago.

the reason you keep track of it, is that on 'paper' it continues to accrue interest. if the person requested another loan it counts against the maximum allowable loan. thus the govt's way to prevent someone from taking a 50,000 loan every year and never paying it back.