Correcting Loan Mistake

[Rai401k]

We have a participant that applied for a loan in early 2012 (March), somehow he was able to apply for a home loan (30 year) on our website with ANNUAL repayments. (Glitch that we haven't figured out yet). Unfortunately the mistake was not caught until now. This means he is in default because loan repayments should be at least quarterly. Since the amortization schedule was set up on an annual basis he has had only 2 payments since March 2012.

Any idea how to fix this? We are being told that we have to submit to VCP?

[rcline46]

^{If using RELIUS, the 'glitch' is in your employer payroll set up - it says your default schedule is ANNUAL (right side of form). Don't know about other systems.}

[BG5150]

Any loan corrections must go through VCP. No SCP.

[Rai401k]

rcline46 - yes relius got it thanks!

BG5150 - believe it or not we have never had to submit to VCP. Is there a checklist that we can use to make sure we are submitting correctly. Where can I find the rules. EPCRS??

[BG5150]

EPCRS on IRS site:

http://www.irs.gov/Retirement-Plans/EPCRS-Overview

Link to .pdf (first link on page)

http://www.irs.gov/Retirement-Plans/New-Revenue-Procedure-Updates-EPCRS

I don't have a ton of experience with filing under VCP. At my old job, we suggested our clients get help from an ERISA attorney.

[ESOP Guy]

I really am not trying to be harsh or mean here but you might want to review your procedures. It has been a while since I worked for a firm that had the 401(k) plan loans automated to the point where it all could be done on the web. But the last step was to have a human look at the loan before it was given final approval to fund just to make sure it followed all the rules. It sounds like it is possible for a loan to get fully approved and funded without a human ever looking at it. I am all for automation to save costs and allow each employee to be more productive but this might be just a little too automated.

I guess I could be over assuming here and the issue is something else.

[Rai401k]

ESOP Guy - Ouch!! But I 100% agree.

BG5150 - Thank you so much - very helpful!