Deemed Defaulted

One of the terminating plan there is a participant with a deemed defaulted loan.  The acquiring company will not accept the deemed defaulted loan, the part was not aware the loan is in the deemed defaulted status and the interest just kept accumulating. The loan was only for $15000 however the now with the interest it is $52000.  Since the loan is deemed defaulted should the participant pay the $52000 or is there any other way this can be handled.

Thanks 

What year did the deemed default occur. Was a 1099-R not issued for that amount? After a 1099-R is issued, the additional accumulated interest is there just to block future loans under the $50,000 rule, or under a plan rule limiting number of loans, the participant would not be taxed on it.

The loan defaulted on 10/02/2006 and yes the part received the 1099-R 

Is this actually a plan termination? (You say "One of the terminating plan" - rather odd phrasing by the way - so if in fact the plan is terminating, then you have a distributable event and it just goes away as a loan offset at that point).

Or is it a merger of plans, or is the acquiring company taking over the old company and its plan? If the latter, I'm not sure they can refuse to take it. (For that matter, if it is the former, I don't see how they get to refuse to accept it.) It shouldn't be a big deal in either event; it's just a phantom asset which, as noted, is only maintained on the books for purposes of limiting future loans.

It can be offset (distributed) if there is a distributable event, which depends on the nature of the plan transaction.

On 8/16/2022 at 2:29 PM, Bird said:

Is this actually a plan termination? (You say "One of the terminating plan" - rather odd phrasing by the way - so if in fact the plan is terminating, then you have a distributable event and it just goes away as a loan offset at that point).

Or is it a merger of plans, or is the acquiring company taking over the old company and its plan? If the latter, I'm not sure they can refuse to take it. (For that matter, if it is the former, I don't see how they get to refuse to accept it.) It shouldn't be a big deal in either event; it's just a phantom asset which, as noted, is only maintained on the books for purposes of limiting future loans.

It can be offset (distributed) if there is a distributable event, which depends on the nature of the plan transaction.

Thank you!