“A looming threat employers face from 401(k) plan loan defaults,” Other Views, May 13:
The author is correct that (1) defaulted plan loans are a serious retirement “leakage” issue, and (2) the adverse tax implications of defaulted loans can surprise many affected participants.
While disclosure of these risks is a good idea, the preferable solution is to allow former employees to continue their loan repayments.
We have done this with Fidelity Investments, our 401(k) third-party administrator, whereby interested former employees provide bank account information to Fidelity so it can withdraw the ongoing payments until the plan loan is repaid.
All plan sponsors should see if their plan vendor will provide this repayment option.
Director, Retirement Benefits
Inova Health System
Falls Church, Va.