AboutWillard R. Brumbaugh, LUTCF Expertise I have answered many questions regarding 401ks, IRAs and annuities as well as life insurance.
I have been counselling against most Qualified Plans since 1994.
Experience Ranked in the top 5 in retirement catagories at Askme.com most of its last 2 1/2 years. Organizations I belong to:
National Association of Insurance and Financial Advisors-California
Inland Empire Estate Planning Council
Education/Credentials Life Underwriters Training Council Fellow
Question ILLINOIS -- I was downsized in early June 2009 with an outstanding 401K loan balance of $7,600. On September 10, I accessed my company’s online benefit system to generate a loan payoff letter. Before the transaction could be completed my computer crashed so I called the Benefits Department. The rep. I spoke to said that she could see I requested the letter and as a safeguard she would also request a loan payoff letter. She then told me that my loan payment was due on September 20. I received the loan payoff letter on September 21, 2009 which provided two loan payoffs dates: September 30, 2009 and October 31, 2009.
I called (calls are recorded) the Benefits Dept. on September 21 to confirm that the loan could be paid either in September or October before the end of either month. The Rep. (I noted her name, time & date of phone call) said yes -- I asked the Rep. if she was positive -- she put me on hold and returned to the phone and said yes the loan could be paid either by the end of September or the end of October 2009. The next day I received a second loan payoff letter with the same due dates.
On October 8, I received a Direct Deposit Summary (DDS) letter from a company in NY showing my outstanding loan balance amount. I called my Benefits Dept. and asked them about the DDS letter--they told me they would look into it for me and would call me back. On October 9, they called and told me that the answer they received from the Plan Administrator was that my loan was in default as of September 30 because it was not paid off within 90 days of my downsizing date.
I told the rep. that I didn't want to be penalized for a mistake that was made in writing (twice) by the Benefits Dept. and confirmed by the rep. I spoke to on September 21. The rep. told me that he would have to go back to the Plan Administrator to state my objections and that either he or his supervisor will call me back this week. I am not 59 1/2. I do not want this loan reported as income, nor do I want to pay taxes and penalties for this error.
What are my options if they tell me there is nothing they can do -- despite the fact that I was given incorrect information both in writing and verbally?
Thanks.
Answer Dear RJ,
I'm not a lawyer, but it looks like you might have to sue the persons that told you that you had until October 30 to pay off the loan for $760. This is the penalty on $7,600. There would be no point in suing for the taxes, since you would have to pay the taxes eventually anyway.
I know this is not much of an answer, but you have given me a problem that seems unsolvable. Your situation is an example of one of the reasons I counsel against 401(k)s.
