ER's payroll cannot support loan payments

We have a sponsor that allows loans in its plan.  Someone took a loan a couple weeks ago.

Thing is, the ER's payroll system has no mechanism to deduct and remit loan repayments!

The sponsor is a big company with a proprietary payroll system, so switching to another program is NOT a solution.

What can they do?  Can we somehow cancel the loan?

32 minutes ago, BG5150 said:

Can we somehow cancel the loan?

Sure, why not? (sarcasm)

Setting aside the absurdity of the whole scenario, I guess you could have the participant write checks to the employer (assuming it is a platform system where ACHs have to come from the sponsor) or write checks to the plan.

How big (or small?) can this employer be that it can't handle loans in payroll?  If they decide they can't handle it, the loan program can be terminated, although I don't see how you could cancel an existing loan.

What Bird says and while switching to another payroll system may not be their preferred choice, I'm sure it can be done.

The company is a large with many franchises.  All the franchise payrolls run through their proprietary payroll system.

18 minutes ago, BG5150 said:

The company is a large with many franchises.  All the franchise payrolls run through their proprietary payroll system.

Not ideal but depending on RK, personal check to RK or employer to deposit for existing loans and then terminate loans going forward.  Could be an issue if existing loan is an HCE though...

Doesn't help with the current problem but sounds like they aren't equipped to have 401(k) loans so amend it out of the plan going forward sounds like a good idea also.  

That might not be a realistic thing for you to recommend but sounds like the right thing to do. 

We are planning on amending out the loan feature.

The payroll system cannot accommodate an after-tax deduction? Or is it the mechanics of auto-stopping that is the issue?

10 minutes ago, 401king said:

The payroll system cannot accommodate an after-tax deduction? Or is it the mechanics of auto-stopping that is the issue?

Agree with this. They've never done a payroll advance? Or deducted for United Way?

I find it hard to believe.

And the participants should be issuing their checks to the PLAN rather than the company.  Certainly a company that big has checking accounts for its plans and would never mingle plan assets with their general assets.

Or they can consider an outsourced loan administrator/product, like My Plan Loan, which can work with a TPA and takes the employer out of the equation. This also allows for continued loan repayments after an employee terminates. Doesn't make a lot of sense for one, but if they expect more loans in the future it may be worthwhile to explore.

Not to throw gasoline on the fire, but I wonder if the Plan document or the Loan Procedures requires payroll deduction of loan repayments.

1 hour ago, Bri said:

And the participants should be issuing their checks to the PLAN rather than the company.  Certainly a company that big has checking accounts for its plans and would never mingle plan assets with their general assets.

The withholding go into an account of the franchise.  From what I understand.

I've done payroll for many years (13+ now) along with HR/benefits and I've never heard of a payroll system that can't add a deduction code and a start/stop date. How are they reporting out other deductions (even just 401k employee deferrals)?  Honestly someone in payroll needs a  boot on their backside on this one.

I agree!