401K loan in default & 1099-R Received

I took out a 401K loan in July 2016 for $3,800 to pay my past due mortgage since my employer was having trouble paying payroll.  I agreed in writing to have the money deducted from my payroll for 4 years.  I received a 1099-R from Transamerica this year for 2017.  I questioned Transamerica and they told me that I received the 1099-R because my employer had defaulted on loan.  My employer has been taking money out of my check every week for 401K loan pay $19.92 as well as my 401K $29.76 that Im paying into for my retirement.  My employer has not paid anything on my 401K loan.  I feel that my employer owes me $19.92 for every check since Aug 2016 and they are still taking money out.  The only difference is that I have not received an ADP payroll check in a couple months, just a paper check with no additional information.  I have asked and I am still waiting on an answer.  I have all my checks.  What are your thoughts.

If everything you say is true, then your employer has effectively stolen all of the money that should have been deposited to the plan, and the problem has been compounded by the loan default.  Do you check your Transamerica statements against what should have been deposited?  How big is your employer (how many employees)?  If you are no longer getting an ADP check then it is likely they weren't paying ADP either.

I'd contact Transamerica again and see if they are providing administrative services or just recordkeeping; if the latter then there should be another party involved, a third party administrator, who probably knows what is going on.  At some point you have to confront your employer about all of this, and if you get nowhere, then your last resort is to go the Department of Labor. 

Again, if all of this is true...almost seems too bad to be true.

I would also recommend you look at the Transamerica statements (or online) and see if you can see the deposits for the loan payments and/or 401(k) amounts. 

If they are clearly not there you have a pretty serious issue. 

I would recommend you speak to your employer and see if they can provide clear answers. 

If not, be aware the Department of Labor takes this issue very seriously.  They don't move fast and the fines they issue could easily put a struggling company out of business which means turning them in to the DOL could cost you a job.  A job were you aren't getting paid regularly might not be the best job in the world either. 

Feel free to ask follow up questions of the people who work in the industry here as you get more information. 

In response to Bird, the company has just came out if bankruptcy a month ago and there are 15 dedicated employees left.  Im going 2 pull both end of the year statements from 2016 and 2017 as well as contact Transamerica today.  There is no loan history except for them giving me the check for the money.

In response to ESOP guy, I spoke to my co-worker who also took out a 401K loan for college in 2014.  Payments were made on his behalf for a year and then at the beginning of 2016, he received a 1099-R.  He questioned it and has been given the runaround ever since.  He reported it to Dept of Labor and they are still working on it.  Our employer has not gotten to him on the issue.  

There are no magic bullets to fix this.  Even if the employer all of a sudden deposited the missing money, with lost earnings , you have the issue of the loan default that shouldn't have happened, and fixing that is difficult (well, it's actually easy but getting the right person to do it is difficult).

You need to be very persistent and not accept the BS that you will get from your employer and also from Transamerica (they will probably shrug their shoulders and try to say none of it is their problem).  As noted above, if there is a "third party administrator" for the plan, they probably know exactly what is going on and can save everyone a lot of time in trying to dig up answers.

I don't think I'd hesitate to go the DOL sooner rather than later. 

Good luck and feel free to write back.

Run to the DOL, don't walk. Save as much documentation as you can. I'd be very concerned by a company that is not making payroll.

We once had a client that for a period  of several months was using employees' 401k contributions and loan repayments to help make its payroll, believing that when it pulled through its "temporary" cash-flow problem it would make everybody whole.  They actually had the best of intentions because the alternative would have been to let some employees go.  Unfortunately for them an employee (or more than one) dropped a dime on them with the DOL.  As I recall the DOL acted very quickly. We were able to resolve the issue without anyone being indicted. 

Transamerica said that no payment had been made on the loan and I should contact my plan administrator.  I have not spoken to my employer yet because I want to make sure that I have all my paperwork together.  My coworker told me today that the President is the plan administrator.  My coworker also said that I should review all my statements regarding the deposits made into my 401K retirement plan because he found a $300 shortfall between now and 2013 and there is no company match.  Now I have to check those figures as well and find out how much was actually paid into my 401K each year to see if this is happening to me as well.  My coworker has been at this for 8 months and DOL is definitely dragging their feet sending letters back and forth requesting info from the employer.  Another coworker said today that he noticed our employer was not paying into the 401K so he stopped his 401K five years ago.  He didn't confront the issue.  Im not letting this ride.  Its bad enough we dont always get paid on time.

This might get a little confusing but I hope it helps...

There are different parties involved and sometimes duties overlap:

• Transamerica is a "recordkeeper."  They are holding the money and keeping track of it by participant and type of money (401k, match, etc.).  They're also keeping track of loans to some extent and obviously decided that your loan defaulted for lack of payment...unfortunately  it wasn't for lack of payment, it was for lack of deposit so the loan should not have defaulted.  Once the payments were taken from your paycheck they are considered "plan assets" but obviously there is a massive screwup/theft in not depositing them.  Unringing that bell is not easy but if you are persistent you should be able to get it corrected.
• Your employer is the Plan Administrator (note capital P capital A).  That means s/he has certain responsibilities/signs forms etc.  It does NOT mean that s/he knows anything about running a plan (obviously).  There is or was almost certainly a "third party administrator" (TPA) involved; someone who is filling out forms for the PA to sign, including tax returns, etc., but there's a lot more to it than that.  This is the person/company who would know about missing deposits etc.  It could be Transamerica and it could be someone else, possibly a smaller local company.  Next time you talk to Trans you should ask if they are the TPA as well.  Unfortunately, my guess is that if they had a local TPA, that person resigned a long time ago for lack of payment and/or knowing about the big problems.

Good luck!  Keep after the DOL and shame them into doing their job.  Letter-writing ain't gonna cut it...

14 hours ago, Tijuana said:

My coworker has been at this for 8 months and DOL is definitely dragging their feet sending letters back and forth requesting info from the employer

I find the DOL behavior very odd.  In my experience they act fast on participant complaints. Make a complaint of your own, and like Bird said, shame them into doing their jobs if you have to.

Transamerica stated that they are only responsible for administrative duties.  This lady claimed that once a loan goes into default, they can not see any additional info on the file except when I took my loan out. 

Yes... since Transamerica is not doing your company's payroll, they do not see if your loan payments are being deducted... only that no loan payments have been made to Transamerica.  Sorry, but you (and you rcoworkers) have a major problem.

Were you able to find out if there is a TPA (third party administrator).  As posted above, Transamerica should know if there is one or not.

On 5/4/2018 at 3:13 PM, RatherBeGolfing said:

I find the DOL behavior very odd.  In my experience they act fast on participant complaints.

I heard somewhere, probably here, that they aren't great on small cases.  I hope that's not true.

On 5/4/2018 at 5:16 PM, Tijuana said:

Transamerica stated that they are only responsible for administrative duties.  This lady claimed that once a loan goes into default, they can not see any additional info on the file except when I took my loan out. 

Her answer isn't very precise.  Next time you call, ask specifically if they are doing "third party administration" on this plan. 

Also if you want to send me a private message with the company name and if possible, tax id number, I can look up any Form 5500 filings.  They won't necessarily shed a lot of light on the situation but might give some clues. 

There is no TPA.  The last payment transamerica received was $14.55 received Feb 2018. 

Thanks for sending the plan info privately.  I found the latest 5500 (tax return for the plan) and while there is only general info, we can develop a little bit better picture of things.

• the plan is on a fiscal year ending 4/30.  The last return was for 4/30/17 and it was filed 2/14/18, one day before the extended due date.  That could be an indication that information was hard to come by.
• There were 39 participants with account balances but only 19 actives, so it confirms that there has been a lot of turnover.
• There's over $1 million in the plan.
• Employee contributions were reported as $7823 for the year.
• The return said there were no missing/late deposits.

You said that there is no TPA and yet a tax return was filed.  In fact it was filed with an electronic signature which is usually an indication of having some help - could be that Transamerica spits out a "sample" form based on info they received, or could be there is a TPA and you got bad info.  I don't have any great answers for you but I'd keep going back to Transamerica and ask for a supervisor where you can explain the whole situation.  Otherwise at some point you have to confront your employer and demand that your contributions and loan payments be deposited, AND that they take action to reverse the default on the loan.  If things happened as you described, then the moment your loan payments left your paycheck they became plan assets and you should have been credited with those payments in order to avoid a default. 

Good luck and continue to keep us informed.

Thank you for the info Bird.  Transamerica just confirmed that there is no TPA.  The lady also said that 1 payment of $14.55 was paid in Feb 2018 and sent me a statement by email. $29.76 is being taken out of my check weekly so this 1 payment is nauseating.  I requested a meeting with my employer today; still waiting on a response.  I will keep you all updated on my progress as you all have been the only light to shed on the situation.  Thanks!

I contacted my employer by email on June 1st regarding the money taken out of my check for the 401k loan that had not been paid at all and the 401k retirement deductions that had not been received by Transamerica in years demanding that they stop taking money out of my check. My employer said the funds had been deferred because of the bankruptcy which ended March 15th.  401k deductions were deposited on June 6 to Transamerica as well as the money taken out of my check for the loan a week after I notified my employer and they are still 1 payroll check behind.  f I already claimed the 401k loan as income on my 2017 taxes, shouldnt that money have been sent to me and not Transmaerica?  I  meet with my employer next week and he has said nothing to me so far except for the money was deferred. I truly believe if I had not said anything to him about this that he would not have said anything to me.  

It sounds like good news/bad news.  Good that they deposited your money.  Bad that your loan payments got deposited as after-tax contributions.  Good that you will get them out at some point, without paying tax (assuming all got recorded properly, which is a stretch, and assuming the loan default doesn't get un-done, which it should).  Very, very bad that the loan was reported as defaulted at all, since you made the payments, and they became "plan assets" when they were withheld from your pay and held in the employer's bank account.

It's a giant mess and can't be fixed by me/us trying to give you pointers; someone who truly understands all of the implications of these matters has to get involved and work very diligently to fix them.  My guess is that the plan had a third party administrator who resigned when things got ugly.  I'm not sure what to tell you at this point but you might ask your employer who helped them complete the Form 5500 (plan tax return).  That person/company is probably in the best position to get things straightened out.