Loan Rollover

[Guest shm3803]

I have a participant who terminated employment in November 2011. She had an outstanding loan at the time of termination. She has not made any payments on the loan since November. Now she wants to roll the loan over to her new employer's 401(k). I know that a loan that has been deemed defaulted cannot be rolled over. However, John Hancok never defaulted the loan. Even though the loan should technically been defaulted, can it be rolled over if the default was never processed?

Thanks!

[Bird]

I guess it depends on where you are sitting. If you are the participant, and want to get away with what you can, you ask for the rollover and cross your fingers. But if you're representing the plan in any way, I think you just make sure the default is processed (tax forms wouldn't be due until Jan 2013 anyway for a 2012 default, which seems the most likely scenario) and that's the end of the discussion. (I don't remember for sure but I don't think JH would unilaterally default a loan; the TPA or plan sponsor would tell them to do it.)

[BG5150]

Will the new plan accept a rollover of a loan? I don't know of many plans that will let you do that.

[Guest shm3803]

The participant is saying that the new plan will set up the loan for her.

[BG5150]

The participant is saying that the new plan will set up the loan for her.

Have her verify that it wouldn't be a new loan from the proceeds from the rollover, but actually rolling over a prior obligation.

Side notes: how do you get around the fact that the loan defaulted on March 31? What will the correction to get it caught up be? And is John Hancock going to calculate the interest through the date of distribution if it is going to be rolled over?

[Guest shm3803]

I am going to tell her we can't do it for her. I just wanted to make sure that not having the deemed default actually be processed by Jonn Hancock yet wouldn't make a difference. Thanks!