If you terminate your employment for any reason (including retirement) you have 60 days to pay off the remaining loan balance from cash from someplace else. If you don't pay off the loan in 60 days, it will automatically be paid off as an offset distribution. "deemed distribution." That means the outstanding balance will be converted to a distribution and you will get a 1099-R, and it will be taxable. You don't actually need to withdraw cash, then pay it back -- the offset distribution takes that two step process and turns it into one step.
As long as you are age 55 or older in the year you terminate employment, there is no 10% penalty for early withdrawal, just normal income tax. If you have money someplace else that you can use to pay off the loan, you might pay less tax (for example, if you sold stock from a regular investment account, you might pay 15% long term capital gains tax instead of 22% income tax). That's up to you.
