cpc0506 Posted August 18, 2015 Posted August 18, 2015 Participant defaulted on a loan in 2014. Never made a single payment to the loan. A 1099-R was issued in 2014. Plan allows for one loan. Only source of money in plan is Salary Deferral. Participant took a new loan in 2015. Is this allowed? FYI: Partcipant has not met any requirements for a distributable event.
Lou S. Posted August 18, 2015 Posted August 18, 2015 No, unless the plan allows multiple loans and the participant still has room under the loan limits. The defaulted loan still accrues interest and is counted against both the number of loans allowed and against the maximum amount allowed to be borrowed under §72(p).
BG5150 Posted August 18, 2015 Posted August 18, 2015 No, unless the plan allows multiple loans and the participant still has room under the loan limits. The defaulted loan still accrues interest and is counted against both the number of loans allowed and against the maximum amount allowed to be borrowed under §72(p). Only until the partiicpant has a disributable event, right? Then it is offset and he's back to square one? QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
Lou S. Posted August 18, 2015 Posted August 18, 2015 No, unless the plan allows multiple loans and the participant still has room under the loan limits. The defaulted loan still accrues interest and is counted against both the number of loans allowed and against the maximum amount allowed to be borrowed under §72(p). Only until the partiicpant has a disributable event, right? Then it is offset and he's back to square one? Correct. I was going by the OP stated condition that no distributable event had occurred.
Tom Poje Posted August 18, 2015 Posted August 18, 2015 I would say what gets confusing is the 5500. Imagine this was the only loan in the plan. on the 5500 the question is asked "Are there any existing loans" and you answer NO! so for that purpose only the loan 'doesn't exist' As the ERISA Outline Book points out, the defaulted loan is solely a tax rule, and is not treated as an actual distribution for other purposes.(7 IX D4) ........................... arguably, since no loan payments were made on the original loan, the 'second' loan could (or possibly should have been denied. e.g. what if the plan allowed more than one loan? This is not suppose to be a way to get 'distributions' from the plan.
BG5150 Posted August 18, 2015 Posted August 18, 2015 Correct. I was going by the OP stated condition that no distributable event had occurred. Oooopppps. Totally missed that. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
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