A 401(k) plan has a loan policy that allows a participant to repay missed loan payments within three months. It also indicates that the employer will inform the administrator of the missed payments and the administrator will allow a cure period for repayments.

In this case, the employer did not inform the administrator until eight months had passed after the participant had terminated employment and had made his last loan repayment.

A 1099-R was issued but no cure notice was provided.

What are the consequences of not providing a notice to the terminated participant before his loan went into default? Are there any penalties?

Thanks.

Does the loan policy state that a "cure notice" will be issued to the participant? It's up to the participant to ensure the loan is repaid timely. If the participant terminates and doesn't repay the loan, the loan defaults. There is no statutory requirement that participants be provided a "cure notice".

Thanks for the reply Pensions in Paradise.

The loan policy does not specifically say that a cure notice will be issued. However, it states:

The committee will attempt to advise the plan administrator approximately one month before the end of the grace period and the participant will be given a chance to pay the missed or insufficient payments.

I like those nice fudge words like "attempt."