Can you correct 401k loan defaulted by "mistake"?

[kmhaab]

Employee took out a 401k loan in April 2016. Loan repayments were never entered into payroll due to oversight on part of payroll coordinator. Loan defaulted due to nonpayment per plan. Employee says she never received notice of any kind regarding the default until receiving the 1099.  Employer wants to correct the default so that employee doesn't have to pay the taxes. Can they correct through VCP and where can I get info on how?

I'm looking at Rev. Proc. 2016-51 6.07, but not finding it to be much help.

Thanks for any assistance you can provide.

[Belgarath]

6.07(2)(a) refers to a correction under 6.07(3), and specifically uses an example a loan failure caused by employer inaction. So you use one of the correction methods in 6.07(3), and submit that through VCP.