LTD to Active Status and 401(k) loan

[justasking]

If an employee initially elected to pay a loan over five years from their 401(k), goes on LTD (considered active under our plans) but did not pay anything for his loans during that time, would he owe everything from while he was out or could the length of the loan be extended for the period while on leave? Yikes (Also notice the employee didnt pay premiums on LTD for medical either, guessing the employee has to pay all that as well.......was out a long long time).

[justasking]

The employee returned to work recently, probably should add that note

[Lou S.]

I believe there are a number of acceptable methods for making up missed loan payments for an approved leave of up to 12 months when the employee returns, all include accruing interest for the missed period.

1. Make a lumps sum payment to bring the loan current and continue with the payments.

2. Reamortize the outstanding balance of the remaining term of the loan (not to exceed the 5 year limit from the initial loan).

3. Balloon payment at the end of the loan term to pay it off. I believe this is an exception to the level amortization rule of 72(p) in this limited case but you may want to double check that.

4. I think other there are few other reasonable methods as well but I'm not sure.

We use option 2 for the plans we provide services to.

As for the LTD, I can't help you there.

edit -

you may find this useful from the IRS phone forum on loans

http://www.irs.gov/pub/irs-tege/loans_phoneforum_transcript.pdf

see page 4 of the transcript for approved leave of absence.