We recently handled an issue for a client that highlights the
importance of overseeing plan service providers. You may ask why
that is true, since service providers are in the business of
helping administer retirement plans. A plan sponsor can just assume
the plan is being administered correctly, right? The short answer
is no -- even reputable companies make mistakes.
In this case, the issue related to the administration of
participant loans. Many, if not most, 401(k) plans permit plan
participants to take loans from their accounts. While plan loans
are permitted by the Internal Revenue Code (the "Code"),
there are a number of restrictions that apply. If the loan fails to
comply with these restrictions, it can result in a
"deemed" taxable distribution to the participant and
potentially to a qualification error for the plan.
