Do you recommend allowing participants to pay-off defaulted loans usin

[Guest Frank Jackson]

I need some advice. Do you recommend allowing participants to pay-off defaulted loans using after-tax funds? Do you know of any record keeping systems that are set up to do this? On the same topic, are there any record keeping system that calculate interest on the defaulted loans?

Thanks!

[pjkoehler]

Assuming that the promissory note does not provide for automatic acceleration of the entire principal balance on default, it might be more convenient to reinstate the loan on a payroll deduction basis as a performing asset of the account after the employee repays the amount (principal plus accrued interest) that is in arrears. Any repayments after the taxable year of default will, however, not affect the treatment of the amount in default as a "deemed distribution" in that year. Rather, it will add to the employee's tax basis with respect to any future distribution from the plan.