Loans

Employers may elect to permit plan participants to take loans against their vested account balance. Employers may also limit the terms in which a loan is only available upon hardship, in which hardship withdrawal conditions must be satisfied.

LIMITATIONS

Minimum loan amounts are typically $1,000.00
A participant may not have a loan balance exceeding $50,000.00 at a given point in time.
Only one-half of the participant’s account balance is available to be withdrawn as a loan from their account.
A participant must be currently employed by the plan sponsor to qualify for a retirement loan.
Terminated or retired participants do not qualify.
Some plans may require the consent of the applicant’s spouse to withdraw a loan from an account.

GENERAL REGULATIONS

Scheduled loan payments are made via by payroll deduction every pay period and are deposited back into the participant’s account. Periodic payments cannot be made less frequently than quarterly payments.
The interest rate of a loan is most often the prime rate on the day a loan is issued, in addition to a small additional interest amount (0.5%-2.00%).
Loan durations will not exceed the period of five years. However, real estate loans, if permitted by the plan, may be paid back in up to thirty years.
Failure to make loan payments will result in a defaulted loan. In which case, the outstanding loan balance will be added to the participant’s salary as taxable income.

TERMINATION OF EMPLOYMENT: If a participant terminates employment while they have an outstanding loan balance, they can choose to either:

Continue making periodic payments, not less frequently than quarterly until the full amount of the loan is paid. Upon the completion of payments, a distribution of the account balance of the terminated participant will occur.

Cease making payments at which point the outstanding loan balance will be defaulted and be considered taxable income.

Please refer to your summary plan description provided to you upon your entrance to the plan to find out whether your plan allows for participant loans. Copies are available to employers upon request.

Please complete and forward a “Loan Request Form” to our office signed by the loan applicant and employer to begin the process of a new loan withdrawal.

*To receive a Participant loan, a Participant must sign a promissory note along with a pledge or assignment of the portion of the Account Balance used for security on the loan. The loan will be evidenced by a legally enforceable agreement which specifies the amount and term of the loan, and the repayment schedule.

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