loan default

if a plan has an early retirement age of 50 and 10 years of service in the plan and they have an active participant who wants to default their outstanding loan and pay the taxes and penalty which is all in the employee 401k source.  Would they be able to default the loan and pay taxes this calendar year and not keep the interest continuing until termination with this option seeing this would be a distributable event for them

What is the distributable event in your mind to allow what you are proposing? 

where they can take out the employee source as an early retirement withdraw

16 hours ago, mehmgo said:

if a plan has an early retirement age of 50 and 10 years of service in the plan and they have an active participant who wants to default their outstanding loan and pay the taxes and penalty which is all in the employee 401k source.

Reading between the lines ("and penalty") this participant is less than 59 1/2 years old.  Your plan has language saying that 401(k) deferrals can't be withdrawn prior to age 59 1/2 as an in-service distribution.  Therefore it is not a distributable event.  (The ERD is effectively not applicable to 401(k) money.)

Also, to utilize "early retirement", one must actually retire and stop working for the employer.