Accrued benefit offset at termination

Let's assume the following:

1. We have a 401(k) plan participant that has $25,000 in his account which is all 100% vested.

2. He decides to take a $5,000 loan.

3. Assume no additional contributions and/or earning to this account.

4. He fails to make the repayments and is issued a 1099-R for the deemed distribution in the amount of $5,000.

5. The loan amount of $5,000 will stay in his account until he either repays it, in which case he will have basis, or the loan is offset by his accrued benefit, in this this case $20,000 once he is eligible to receive a plan distribution. 

He now terminates from the plan with a $20,000 cash balance and a $5,000 participant loan receivable. At this point, his loan balance is offset by his accrued benefit. How much does he get? $20,000? $15,000? Also how is the final 1099-R handled? How would this offset be reflected on the 5500? 

He gets $20,000.  The loan basically doesn't exist for tax reporting purposes since it was already taxed. 

Where is the offset to this loan at termination?

44 minutes ago, rblum50 said:

Where is the offset to this loan at termination?

He has a $5,000 asset in his account called "unpaid loan" for lack of a better term plus $20,000 in cash investments for a total of $25,000 balance.  So when he is paid he gets a check for $20,000 plus the $5,000 loan in kind is the way to think of it.  Since he paid taxes on the $5,000 already he doesn't pay again. 

That is the easiest way to describe it in my mind even if I am playing a little fast and loose with the legal terms. 

Thanks ESOP Guy, that's a good intuitive explanation.