Participant loan defaulted, but participant never told to cure

[Guest TaxedToDeath]

A participant missed payments on his participant loan, but did not receive any notification that his loan was delinquent and needed to be brought current before the end of the cure period.

Can the participant be permitted to cure now, even though the cure period already ended?

Or is there no alternative to deeming the loan distributed, even though the participant was never informed of the delinquency and never given a chance to cure?

[ETA Consulting LLC]

A participant missed payments on his participant loan, but did not receive any notification that his loan was delinquent and needed to be brought current before the end of the cure period.

Can the participant be permitted to cure now, even though the cure period already ended?

Or is there no alternative to deeming the loan distributed, even though the participant was never informed of the delinquency and never given a chance to cure?

Well, the plan should've given an opportunity to cure by the end of the month following the month in which the payment was missed. Not having done that, technically, does not delay the taxable event. If the participant has a distributable event, then the taxable loan becomes an offset that is eligible for the 60 day rollover. There would be no deemed distribution since there is a distributable event. You may file for an extention under VCP (which may be appropriate since the participant wasn't given an opportunity to cure).

Good Luck!

[BG5150]

How wasn't the participant given the opportunity to cure?

Was he getting pay stubs with suddenly-higher net amounts?

[Bird]

Hmm, I always thought that notifying participants of missed payments and the opportunity to cure was just a courtesy. I don't see how failure to notify in any way affects the default.

[Guest TaxedToDeath]

You may file for an extention under VCP (which may be appropriate since the participant wasn't given an opportunity to cure).

Is VCP available in this type of situation? EPCRS provides for correction when the loan doesn't comply with the terms of IRC 72(p). It also provides for correction when the loan complies with IRC 72(p) but is defaulted. But the correction there is to either make a lump sum repayment or reamortize the loan (assuming not past the maximum 5-year loan repayment period), right? How exactly can an "extension" be obtained via VCP?

[Guest Pennysaver]

Hmm, I always thought that notifying participants of missed payments and the opportunity to cure was just a courtesy. I don't see how failure to notify in any way affects the default.

It may not affect the fact of the default, but isn't there a fiduciary issue here? Isn't the notification needed in order for the fiduciary to attempt to recover the plan asset?