What is the “cure period”?
The cure period is a grace period during which participants may make up missed payments and avoid a defaulted loan. Each plan determines the cure period as part of its loan policy. Most plan sponsors have adopted the loan policy template provided by Alerus. That policy includes the following:
- Current employees: The plan uses the maximum IRS Cure Period. The grace period begins on the date of the missed payment and ends on the last day of the following calendar quarter. For example, if Bob misses a payment due February 2, he has until June 30 to bring the payment current. If he fails to do so, the plan reports the outstanding loan balance as a distribution.
- Former employees: If a participant terminates employment, the outstanding loan balance may be due within 60 days. If your plan’s loan policy does not have language requiring the loan to be defaulted due to termination, the cure period grace period applies.