Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.
Over the next few weeks 401kBasics is going to review the common mistakes that plan sponsors make in administering their plan, how to find the mistake and how to correct the mistake. The ninth common mistake is failure to have participant loans conform requirement of the plan document and §72(p).
- How to Find the Mistake: Review the plan document and all outstanding loans to ensure the loans comply with the plan’s terms and that the employees are repaying their loans timely.
- How to Fix the Mistake: Some failures may be corrected by corrective repayment and/or modification of loan terms. The correction programs available include VCP and Audit CAP, depending upon the situation.
This mistake can be avoided in the future by reviewing and following the plan provisions relating to making loans, including the amount of loan, term of the loan and repayment terms. Make sure there are procedures in place to prevent loans that are prohibited transactions. For more information please refer to potential mistake number 9 on the IRS 401(k) Fix-It Guide.
This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.