Loan Correction

What are acceptable methods of self-correction if an employer missed setting up loan repayments? A participant was supposed to start getting loan deductions taken in September 2021 but the employer's payroll area missed setting it up. The participant can't pay a lump sum to catch up. Is the only option to amortize over the remaining period? Can they chalk it up to an administrative error and change the start date?

If initial term was 5 years then I think re-amortizing is needed. If it was say 4 years and starting now completes payoff within the max 5 years then that might be OK. Or the employer could make the lump sum catch-up, but I think would have to include such in employee's taxable compensation.

EPCRS allows the participant in the plan to re-amortize the loan over the balance of the five year period. There is no need to report this as a deemed distribution. [EPCRS §6.07(3)(d)]