401k loan - default never processed

[JKW]

A loan for a terminated participant should have been defaulted back in 2010, it was not. What is the process for getting this corrected? The custodian is generating the 1099 current date. Is there a penalty?

[Tom Poje]

using VCP under the self correction program (Section 6.07)

.07 Rules relating to reporting plan loan failures. (1) General rule for loans.

Unless correction is made in accordance with this section 6.07(2) or (3), a deemed

distribution under § 72(p)(1) in connection with a failure relating to a loan to a participant

made from a plan must be reported on Form 1099-R with respect to the affected

participant and any applicable income tax withholding amount that was required to be

paid in connection with the failure (see § 1.72(p)-1, Q&A-15) must be paid by the

employer. As part of VCP, the deemed distribution may be reported on Form 1099-R with

respect to the affected participant for the year of correction (instead of the year of the

failure. The relief from reporting the participant’s loan as a deemed distribution on Form

1099-R in the year of correction, as described in the preceding sentence, applies only if

the Plan Sponsor specifically requests such relief.