Hello,

I need assistance with the following:
I took a loan from my 401(K) 24 years ago. The loan is amortized over 27 years. The loan is secured by the residence which I used the proceeds to purchase. I made monthly payments until the beginning of 2020. I have not made any payments in 2020. Instead, I mailed a check for the entire amount of 2020 in January 2021. The trustee cashed the check and submitted it to the Administrator. The Administrator waited a month and then instructed the trustee to issue a reimbursement check which was mailed to me together with a 1099-R for the balance of the outstanding loan, as deemed distribution, plus interest for half a year at the loan prescribed rate. In essence, the Administrator deems the loan in default as of 6/30/2020 in accordance with Treasury Regulation, Section 1.72(p)-1.

I read the CFR and its states a Declaration of Default. My contention is that I never received any notice of default and haven’t had any communication with the Administrator until after the check for a full cure was cashed. In addition, I never received a demand for payment a notification that I have defaulted, or any loan statements over 24 years. I do receive a monthly investment statement from the broker, but it does not reference the 401(k) loan. Annually, I receive a summary recap of the 401(k) which shows the principal outstanding on the loan. But the statement always coincides with the original amortization table regardless of whether I made 12 monthly payments in that particular calendar year, or not.

My primary contention is that a declaration requires notification and the Administrator has a duty to inform me of the amount in arrears, the principal outstanding, and to provide a cure period. It is not commercially acceptable to deem that a default has occurred once a full payment to cure the default has been received and deposited by the trustee. Consequently, I do not believe that the Administrator has complied with what is required to establish a default. Hence, I dispute the validity of the 1099-R. Please advise whether or not I have any basis to dispute the default and 1099-R? I am aware of the ability to offset the income tax consequences by rolling the distribution into an IRA. Thanks in advance for you assistance. Dan Jozefov