Extend 5 year general purpose loan?

[oldman]

Plan had a system problem with their loans where they had a biweekly pay cycle of 26 payrolls but the loans were only included in 24. The new PA wants to know if she can extend the loans beyond the allowable 5 year period because it is not the fault of the participants. Several are coming into their 5th year this year and they are 8 to 10 payments behind. They system problem was corrected a year or so ago, so the problem doesn’t continue to exist but does still effect participants with loans issued prior to the fix.

It is my understanding that the participants could reamortize payments, but cannot extend payments beyond the 5 year term. The employter has not defaulted on the affected loans and wishes to extend loan payments past the 5 year term.

What are the plan sponsor's options?

[Bird]

The way I see it, if a loan payment happens to be made after the original 5 year period, it means nothing. The payments must be scheduled to be completed within 5 years, but actual payments could be made after the 5 year period as long as they didn't run afoul of the default rules (i.e. paid by the end of the quarter following the original due date).

The problem here is that the loans probably defaulted already - if they are running behind 2 payments per year, then at the end of 3 years they are 6 payments behind, and with 6.5 scheduled payments per quarter, they would be more than a quarter behind after 3+ years. (If you had a loan effective Jan 1 2007, and keep ratcheting payments back by 2 each year, a payment due at the end of March 2010 is probably going to be paid in July 2010 and will, or should have, triggered a default.)

(Assuming the plan and/or loan policy uses the longest possible default period, of course.)

[MWeddell]

I encourage anyone who finds this thread in a search to instead look at http://benefitslink.com/boards/index.php?/topic/51935-cure-period-applicable-to-5-year-max-loan/?hl=loan, a thread where the same topic was raised but the discussion became more robust.