Loan Overpayments

[kmhaab]

What should a plan do with 401(k) loan overpayments?  Overpayments occurred due to an administrative error by the plan sponsor (they deducted one too many loan payments from a couple of participants' earnings and transmitted these amounts to the plan. Can these amounts be distributed from the plan back to the participants? Does the answer change if the overpayments were made in a prior plan year/tax year?

 

[Lou S.]

Return the over payment to the participant.

 

[kmhaab]

32 minutes ago, Lou S. said:

Return the over payment to the participant.

 

Yes, thank you, but HOW should they return the overpayment to the participant? Can it be paid as a distribution from the plan, similar to an excess amount? Can it be reverted back to the employer due to it being contributed in error and then paid to the participant as wages? In searching the message boards I came across comments on a similar situation where a commenter stated the amounts could not be paid back from the plan because the amounts became plan assets once they were contributed to the plan. I've been unable to identify any guidance confirming this opinion so far. 

[ratherbereading]

Have the investment house return it to the client and they refund it back to the participant. Not as wages.