401k provider's loan fee deducted from loan check

[MJ Hartman]

In the process of preparing a loan form for one of our platform 401k providers, it appears they deduct the loan processing fees from the loan check, thereby netting out the amount a participant will receive. ie a person requests a loan for $5000 but receives a net check of $4900 after fees are deducted for processing. however the platform deducts their loan maintenance fee quarterly directly from the participant's account on the 401k platform.

How is this correct when it was my understanding that fees are not taken into account for tax purposes when receiving a distribution from a plan but a participant is somehow obligated to repay the administrative fee to the plan when taking a loan. The platform is also including any express mail delivery fees to be deducted from the loan check amount as well. If the participant has no ability to receive this $ in the actual loan, why are they obligated to repay it as part of their outstanding loan ??

[Lou S.]

I've seen it done both ways. I agree with you but I doubt you'll get anywhere with them. You are stuck with their rules or find another platform.

[Bird]

I've seen it done both ways, but usually it is a separate fee, I think. I guess it could be argued that when the fee is taken from the loan proceeds, it is not paid by the plan - effectively, at least from the plan's perspective, the participant has received a loan and paid the fee personally. I'm curious as to how this is all reported in the trust accounting. Does it matter...? I'm not sure. As long as a participant is aware of the policy, they can request $5100 to net $5000 (subject to limits of course).