Expert: Shirley McAllister, CPP, PHR - 11/7/2008

Question
I had 2 separate laons to my 401k in 2005.  Last month, my controller mentioned that no payments have been made on my loans.  I get diret deposit and a stub but never noticed that my loan amount wasnt being deducted.  I thought the line item for 401k represented my contribution - my loan payment.  Anyway, my loan is now in default to myself and I have to pay it back immediately.  I am stuck with an $11k bill and my company is not doing anything to help me.  They missed this for 2 YEARS, as did the TPA.  Don't they have any liability in this?

Answer
The company should work with you on this, however, it is the responsibility of the employee to make sure their wages are correct.

You should not have to pay the whole amount back just catch up the missed payments.

If you are in actual default than what happens is the amount goes on a 1099R and you will pay taxes on that amount as a distribution from your 401K. I do not think that the whole amount is paid back.

I think the employer should take some responsibility, perhaps work with the TPA and pay the back payments to the 401K for you and allow you to pay a little at a time on the back payments until the amount is caught up . You could probably suspend your 401K contribution until this is done.

Shirley