FAQ 883: DV - Loans - defaulting a loan


Can you please tell me how to default loans on ASC? (daily valuation trading through MSCS)


The primary consideration is reporting: the loan balance needs to be reported as a deemed distribution, and thus is taxable. This can be done by accessing DV Viewer in Maintenance Mode (so you can edit). Open the Pending Distribution File - this is the file that automatically gets populated with information to be sent to Matrix so they can do the proper 1099R reporting. At the bottom of the file records, you can add a record. Create a new record and populate that record with the pertinent information (populate the fields that have been populated in the other records - that's the easiest way).

The gross, taxable, and net amounts in the Pending Distribution File need to be blank (zero). The loan default amount needs to be populated with the outstanding loan balance. When the MSCS disbursement file is created, the loan default amount is added back to the gross and taxable amount. Thus, the net amount plus the loan default amount will equal the gross and taxable amounts. Make sure you include the correct 1099R code in the 1099RCd field, and give this record a send status (SendStat) of 'R' (ready to be sent).

As far as ASC is concerned, the loan continues to be carried in the participant's account. There really is no way to flag the loan as having been defaulted. It's technically still part of the participant's account. When the participant is paid out, it will not be included in the distribution.