Question

When conducting an audit or compliance review you note that several participant loans are delinquent. These loans are held in a 401(k) plan for which the bank as trustee maintains and disburses funds, and the account administrator was not aware of the delinquencies. You recommend that the trustee's account administrator:

a. do nothing.
b. treat all loans over 120 days delinquent as taxable distributions and send 1099s to the participants at year end.
c. notify the Named Fiduciary who administers the loan program.
d. send delinquency notices to the beneficiaries only (to preserve their right to privacy).

Answer 1

If participant loans in a 401(k) plan are found to be delinquent, the trustee's account administrator should notify the Named Fiduciary who is responsible for administering the loan program.

Step-by-step explanation:

When conducting an audit or compliance review and noticing that several participant loans are delinquent in a 401(k) plan, the correct recommendation for the trustee's account administrator is to notify the Named Fiduciary who administers the loan program.

This step is essential because the Named Fiduciary has the responsibility to address the issue and take appropriate action, which could include restructuring the loan, commencing the collections process, or considering the delinquent loans as taxable distributions if necessary. Handling such matters is part of the fiduciary duties to ensure the plan is operating according to legal requirements and serves the best interests of the participants.