Note that an offset distribution satisfies the loan, so after an offset distribution there is nothing left that needs to be paid off. The option is either come up with money to complete a rollover of some or all of the offset distribution or not.
If a loan default occurred at a time when you would be ineligible to receive an offset distribution (say, still working for the company and under age 59½), the result would be a deemed distribution that is not eligible for rollover. A deemed distribution means that the outstanding amount of the loan becomes taxable but the loan is not satisfied, the balance to your credit in the plan is not reduced and the loan must still be repaid, with repayments becoming after-tax basis in the plan . A deemed distribution is reported in box 7 of the Form 1099-R with code L instead of code M.
