Does a defaulted loan still count as a loan?

[AlbanyConsultant]

Plan has a participant who defaulted on their loan (because the plan sponsor forgot to start the repayments, not that that particularly matters). 1099-R has been issued, and we're still accumulating income because there is no distributable event yet. Now the participant wants to take a new loan - the plan sponsor is very inclined to give one to her because they feel this whole situation was their fault.

The plan's loan program only allows one outstanding loan per participant. Does this defaulted loan count as the one loan the participant can have?

[ETA Consulting LLC]

Yes. A defaulted loan is still an outstanding loan.

Good Luck!

[masteff]

The term for when a defaulted loan is taken off the books is: offset. Offset can only happen when the participant is eligible to receive a distribution from the plan. Search the word "offset" in the 1.72(p)-1 regs.

[QDROphile]

So the employer forgot to start payroll deduction that led to a tax event. Did the loan payments start after the discovery? Who gets a pass on payment simply because of the tax event? If the employer is feeling guilty, the employer can do something nice, but that does does not mean that the plan administrator looks the other way on loan payment or the employer facilitates continued default by not deducting for payments in accordance with the contractual arrangments of the loan. Mistakes get made, but that does not excuse their continuation.

[BG5150]

How long ago? Did anyone think of EPCRS to just have the loan re-amortized?

[AlbanyConsultant]

How long ago? Did anyone think of EPCRS to just have the loan re-amortized?

Plan sponsor elected to default rather than go this route.