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Focused Topic 08: Dealing With Loan Defaults
Presentor: Derrin Watson Recorded Date: 11/5/2013 Duration: 60 Min.

This program was recorded during a live presentation on November 5, 2013.

Dealing With Loan Defaults
Tuesdays with Derrin and Steve

Administering participant loans is one of the least rewarding and most challenging aspects of retirement plan practice. Many practitioners would just as soon eliminate loans from the plan. However, loans continue to be one of the more popular plan features.

In today’s difficult economic times, plans are experiencing more loan defaults. When a participant defaults on a loan, the plan must address the following issues: Can I offset the loan? What is the difference between a loan offset and a deemed distribution? How do I report a deemed distribution and a loan offset on Forms 1099-R and 5500? How do I account for the defaulted loan?

We address these questions and others, such as: When is a defaulted loan a prohibited transaction? How do I correct a failure to withhold? If the employer fails to deposit the loan repayment is it a default? This web seminar provides you with a better understanding of how to administer loans properly.

Topics include:

  • Loan offset vs. deemed distribution
  • Grace period
  • Reporting defaults
    • Deemed distribution vs. loan offset Phantom interest
    • Offset following deemed distribution
  • Loan acceleration
  • Delinquent deposit of loan repayments
    • Excise tax calculation
  • Impact of bankruptcy
  • Impact of death

Prerequisites: There are no prerequisites or advance preparation for this program.However, the instructor will assume attendees are familiar with the basics of handling plan loans.

Level: Intermediate

Instructional Delivery Method
Group - Internet-Based

Speaker: S. Derrin Watson, J.D., APM
Recipient of ASPPA's 2006 Educator of the Year Award

Objectives: After attending this Web seminar, an attendee should be able to:

  1. Distinguish between defaulted loans that are deemed distributions and those which are loan offsets
  2. Determine how to report a defaulted loan on Forms 1099-R and 5500
  3. Report and correct delinquent deposits of loan repayments
  4. Account for loans after default
  5. Determine the proper interaction of the bankruptcy laws and the loan requirements
  6. Determine when a defaulted loan is a prohibited transaction
  7. Design a loan policy that reflects the employer’s wishes and complies with the laws

Hardware System Requirements: 

  • Windows 95, 98, NT 4.0, 2000, XP, Windows 7
  • Internet Explorer 4.01 or later, Netscape 4.08 or later, and set Internet browser to allow pop-up windows.
  • High-speed Internet connection.
  • Pentium 166+ MHz, 128MB RAM or more.
  • 1023 x 768 or higher display resolution.
  • Soundcard and Speakers.

Software Requirements:

Program related requests, questions, or concerns may be emailed to: