Voluntary Correction Program – How to correct 401(k) plan loan “failures”
Abstract: “To err is human; to forgive is divine,” as the familiar saying goes. But the IRS will forgive errors involving 401(k) plan loans only when retirement plans use the Voluntary Correction Program (VCP). One of the biggest areas that trip up plan sponsors is plan loans. This article summarizes the three primary “failures” involving plan loans that require an IRS remedy: loan defaults, loans exceeding prescribed limits, and loan terms that exceed repayment limits. A brief sidebar reviews the accounting implications of loan defaults.