John A Posted November 1, 1999 Posted November 1, 1999 What is the correction in the following situation: Participant takes loan of $40,000. Participant had no outstanding loans. But participant's highest balance of a loan in 12-month period preceding the loan was $12,500. Can this be corrected under APRSC? Can this be corrected by having the participant repay $2,500 and reamortizing the remaining amount? What happens if the participant refuses to cooperate with the correction (repay the $2,500)?
Guest Posted November 1, 1999 Posted November 1, 1999 I"m not sure about correcting it under APRSC, but if the participant doesn't correct it, the entire loan is reportable under section 72. I would allow the participant to repay the amount.
Guest Posted November 2, 1999 Posted November 2, 1999 see Q & A 113 in the Q&A for Plan Defects column on BenefitsLink (click). It addresses the issue of allowing to many loans, but I think the same logic would apply. APRSC would seem to be available, possibility of treating the loan as an in service distribution, etc. [This message has been edited by Dave Baker (edited 11-02-1999).]
John A Posted November 3, 1999 Author Posted November 3, 1999 In this case, would the excess amount of the loan be considered a deemed distribution? Would there be a prohibited transaction in the amount of the excess for which a 5330 would need to be filed?
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