Over Loan Limit

[emmetttrudy]

A one person plan had a $50,000 loan from his 401k Plan. Less than 6 months later his TPA inexplicably amended his DB Plan to allow him to take a $50,000 loan from his DB plan also, apparently not knowing that all plans are aggregated for the loan limit. The DB plan loan occurred in mid-2011 and he has been making loan repayments monthly. What is the correct way of fixing this? Should he pay the money back immediately? Does he need to go through one of the correction programs?

[ETA Consulting LLC]

Well, we know that, technically, the excess is treated as a taxable distribution; and the participant is likely no eligible for a distribution from the plan. You would begin there; by treating it as a distribution that must be returned to the plan. Not sure how comfortable you'd be attempting to correct under SCP, but I wouldn't hesitate to fix under VCP if there is any discomfort with the correction you choose.

Good Luck!