Cynchbeast Posted May 2, 2013 Posted May 2, 2013 We have client that overlooked payroll deduction of loan payments since 2011. We just discovered this with data rec'd for 2012 plan year. Technically, default occurred in 2011, but was only discovered this past month. We have calculated default (Princ + accrued interest), and participant wants to refinance loan for 5 year term as there are only 5 pay periods remaining on original term. Q1) Any concerns with us writing 2nd loan for 5 year term to refinance default? Q2) Watching a webcast from ASCi on EPCRS, an example presented of using VCP was "you want to not recognize a loan default in the year of default but actually in the year of correction." Does this mean we cannot just self-correct (SCP) but have to submit under VCP?
Tom Poje Posted May 2, 2013 Posted May 2, 2013 loan issues are never ever ever ever correctable under SCP. (or at least that is how I read the rules) only VCP or Audit CAP. see EPCRS 6.07
BG5150 Posted May 2, 2013 Posted May 2, 2013 Side note: no one noticed that their paycheck didn't go down for two years? QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
Cynchbeast Posted May 3, 2013 Author Posted May 3, 2013 Thank you all for your input. And yes, neither the employer nor the participant noticed the error for almost 2 years. Out of sight out of mind. We will work with the sponsor on our submission to VCP, but I have 2 questions: 1) They have in the range of 30+ participants, so fee appears to be $1,000. Does this qualify for 50% reduction in fee as per 8(d) of form 8951? 2) We understand the VCP process can take quite a long time to complete. In the meantime, any suggestions on how to proceed? Does it make sense to declare the deemed distribution and re-finance the loan at this time rather allow the default to continue to grow? Participant wants to extend it for 5 years.
BG5150 Posted May 3, 2013 Posted May 3, 2013 I don't think they'll let you extend it out 5 more years. That would be a 10-year loan. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
Cynchbeast Posted May 3, 2013 Author Posted May 3, 2013 So - we have an outstanding loan of around $20,000 and less than 3 months remaining on the original term, and a participant who may not be able to repay it in that time. What do you suggest?
BG5150 Posted May 3, 2013 Posted May 3, 2013 1099-R. Beg and plead to have it allowable in 2013 rather than 2008. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
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