I have a client who wants to know if a participant with a 401k loan and is in default as he is out of work on Workers Comp (and cannot be fired), whether there are any provisions or regulations to prevent issuing a 1099R for the outstanding loan balance at the end of 2004. I believe that for military leave, the loan cannot be defaulted, but thats a separate issue. The participant was having loan payments deducted from their paycheck which there are not currently receiving. He did not make alternate arrangements in repaying the loan.
Happy New Years!

First you need to follow the terms of the loan note as to whether it is in default. If not in the note, the the DOL regs which say a loan is defaulted at the end of the quarter in which no payments are made.

Then the trustee has the final say on extension of credit and at last a deemed distribution.

Many loan policies allow for a suspension of payments, for up to one year, for a leave of absence other than military. Could this particiant fall into that category, and does the loan policy allow for this suspension?