VCP Application re Participant Loans

[Guest TaxedToDeath]

Does anyone know how repayments on a participant loan that is the subject of a participant loan failure submitted via VCP should be handled pending the issuance of a VCP compliance statement?

[ETA Consulting LLC]

There is nothing to preclude a loan being repaid prior to the loan being "actually distributed" from the plan. So, if nothing else, take the payment. The issue, then, would be whether the loan is repaid on a tax-free basis or a after-tax basis; after-tax being your worst case scenario. Once the case has been assigned, you can then being interacting with the agent on the case.

This is, likely, the best you can do. Everything is really speculative until then.

Good Luck!

[Guest PiggyBank]

So, if nothing else, take the payment.

Remember that participant loan repayments are plan assets. I do not believe that acceptance of a participant loan repayment, regardless of whether the participant loan is the subject of a VCP application, is either optional or subject to the discretion of the plan administrator. The trustee of the plan has a fiduciary responsibility to accept participant loan repayments. I therefore agree with ERISAtoolkit that even if you do nothing else, you must accept the repayment.

Since the participant loan in question is the subject of a VCP application, you can work with the VCP reviewing agent to determine how to properly account for the participant loan repayments with respect to whatever has to be done as a consequence of the VCP application (e.g., re-amortization, deemed distribution, etc.) In the meantime, however, I would think it is imperative that the participant loan repayments be accepted.

Even if the participant loan has been deemed distributed, the repayments should be accepted, as the deemed distribution does not extinguish the repayment obligation (keeping in mind, of course, that you will need to track the after-tax basis for such repayments.)