A Legal Question

[Wingate1217]

Hopefully one of our legal members can help me with this one or tell me just to forget it.....


I have a 401K account with a former employer in which I took out a loan against in 2006. I have been paying the loan back with a payment each month in excess of the required amount over a two years. Before I left my former employer an individual at the administrator of the 401k program confirmed that I could continue to pay the loan out over time as long as I disbursed enough funds to cover the required payments over the course of any one quarter. I have had this arrangement for well over a year now.

I sent in my required June payment in on or around June 20, 2008 and noticed that it was not cashed by the end of the week. This did not surprise me since the repayments to my account were routinely taking at least 10 business days to hit my bank statement and 401 K account even though it was mailed to a local address.
I then sent in my July payment on or around July 13th and I waited for the transaction to hit my either my bank or 401 K account. When this did not happen after an adequate time I called the 401k administrator and spoke to one of the representatives on Friday July 25th. She informed that she could not find the checks. She explained that she would call me back next week once she had done some investigation. I am still waiting for that call.

The following Friday (first Friday in August) once I realized that I would never be called back I again called the administrator. This time the lady found the checks and even gave me the check numbers (#5217 & 5372) that I wrote! She claimed that she would get this taken care of immediately and have the payments posted to my account.

Again nothing and a full week after the issue was supposed to be resolved and nothing has hit my bank or 401 K accounts to indicate that the checks have been posted I wrote and mailed a certified letter and enclosed my usual monthly payment.

Again I waited a week and nothing hit my bank or 401k account so I called the administrator's office again. Steve (who answered the phone) found the first two checks but not my letter sent the previous week (even though I know it was delivered on the previous Tuesday). He stated that they were short handed and that he would research for the letter and the payment and give me a call on Friday August 22nd (tomorrow). I have no hope for a call back.......

Now, do I have any legal recourse??? I am afraid that they might try to say the loan is in default forcing me to declare as income on this year's taxes. In my mind, I am wondering if they are doing this because by paying the loan back my account is still active and this October I would hit 5 years in the program and hence be 100% vested in regards to the company's contribution. Does any of the legal beagles on this board have any suggestions???

Thanks! and greenies to everyone that contributes a viable option.....

 

[ArtilleryBuck]

I'll assume they're too far to pay a visit in person....Have you asked them if you can make the payments electronically? Then, of course, you'll have to stop payment on the checks (5217, 5372, and whatever number the certified one was). Speaking of checks, 155 checks in 23 days? Your pen must be exhausted.

 

[gbearbuck]

I'm not an attorney... I am knowledgeable in the area of retirement plans...

Most of the time the plan admin. will force you to repay the loan in a short amount of time if you separate employment (as you indicated this would result in the loan being considered a distribution and subject to income taxes as well as the 10% penalty depending on your age)... this is one of the major drawbacks to using loan features in 401(k)'s. As a matter of fact, for this reason I advise clients to not offer the option (state loans are not permitted in the plan doc's). It is a pain in the rear for the admin. folks...

As far as legal recourse, I would think you would need things in writing from the plan admin, and the info would need to match the plan doc's... I'd try and get my hands on the plan doc's so you can see what your options are in the plan. You might have been told one thing, however the plan doc's might not allow for such an option.

 

[Wingate1217]

An update: I received a call late yesterday (Friday) from Steve. He explained the problem was because I was paying more than was required every month and they didn't know how to allocate the excess to my account. I was paying about $25 more than the required amount and I reminded Steve that I had been paying "too much" for a year and a half now.
To cut to the chase, Steve told me that my last three payments would be applied to my account and the "excess" amount would go to future payments. I now do not have a payment due till November now and it is only $82 and I resume "regular" payments in December.

I plan on sending the administrator a "registered letter" highlighting my understanding of this conversation and eliminating any chance that they could say that I defaulted on the loan come next month and October....
Thanks to all that responded....