HomeMy WebLinkAbout06.a. Adopt resolution allowing participants to borrow funds from the 457 Deferred Compensation Plan 6 .a.
• Central Contra Costa Sanitary District
�f BOARD OF DIRECTORS
POSITION P
Board Meeting Date: August 18, 2016
Subject: ADOPT RESOLUTION ALLOWING PARTICIPANTS TO BORROW
FUNDS FROM THE DISTRICT'S 457 DEFERRED COMPENSATION
PLAN
Submitted By. Initiating Dept./Div.:
Thea Vassallo, CPA, CMA Administration / Finance
Finance Manager
REVIEWED AND RECOMMENDED FOR BOARD ACTION: •
A. Sasaki—Deputy General Manager Y44
Roger S.&ley
General Manager
ISSUE: The District's ICMA-RC 457 Deferred Compensation Plan does not currently
allow participants to borrow funds from the Plan. The Deferred Compensation
Committee (DCC), comprised of District employees, has recommended that a loan
feature be added to the 457 Plan.
BACKGROUND: This matter was first brought to the attention of the DCC by
employees inquiring about the possibility of borrowing funds from the 457 Plan.
In February 2016, the DCC began the conversation with Retirement Plan Specialist,
Kim Hammond of ICMA-RC. At that time, Ms. Hammond confirmed that the loan
program could be administered easily online through use of the Automated Clearing
House (ACH). The loan agreement could be set up between the employee and ICMA-
RC directly. She stated that most agencies that allow loans limit residential loans to 20
years or less and generally allow loans for any reason, since they are not restricted
under the Internal Revenue Service (IRS) rules. Another option would be to place
restrictions on use of funds for such things as purchase of a primary residence,
education, or unreimbursed medical expenses. However, if that were the case, the
burden of review, setting criteria, administration, and approval would be shifted to the
District.
Ms. Hammond also explained,that if a participant takes out a loan, closes their bank
account, and defaults on the loan, the District's plan is protected, as the employee's
account balance secures the loan. A default would trigger a taxable event for the
participant and they would receive a 1099 for tax reporting purposes from ICMA-RC.
When asked about safeguards against potential program abusers, Ms. Hammond
stated that the abuses could be controlled by limiting the number of loans, and the
District would have the option to rescind the loan program at any time. Loans would be
reported to the District as part of ICMA-RC's monthly statement and reviewed by the
Page 1 of 4
POSITION PAPER
Board Meeting Date: August 18, 2016
Subject-' ADOPT RESOLUTION ALLOWING PARTICIPANTS TO BORROW FUNDS
FROM THE DISTRICT'S 457 DEFERRED COMPENSATION PLAN
Finance Manager. Loan activity would be reviewed by the DCC as part of their annual
review. The attached "Employer Guide to Direct Loans with ACH Debit Loan
Repayments" (Attachment 1) provides additional information, including plan sponsor
responsibilities.
Advantages to the employee of adding a loan feature to the District's 457 Plan include
the following: 1) 457 loans are not recorded on the borrowers' credit report,
2) borrowers do not need to meet lending requirements, 3) interest rates are competitive
and interest is paid back to the borrowers' account, and 4) the application fee may be
minimal compared to other borrowing methods.
Disadvantages include the following: 1) lost opportunity cost for compounding on the
money; 2) repayment of the loan is with after-tax dollars; 3) double taxation (because
participants are taxed again when funds are withdrawn in retirement); 4) inability to
repay the loan results in a distribution, subject to ordinary income tax; 5) the fees
payable may be a more expensive option than borrowing from the bank or credit union.
In June 2016, the DCC reviewed the results of the District's survey of 14 agencies in
California (Attachment 2). As indicated in the chart, eight of the 14 agencies surveyed
allow loans from their employees' 457 plans, and six allow loans from their employees'
401 plans. The DCC recommended that loans be available from the District's 457 Plan
only, since those monies are 100% employee contributions.
In July 2016, the DCC met with ICMA-RC representatives Kim Hammond and Michele
Martin, Managing Vice President, Western Region, to conduct the annual review of the
457 Plan as a whole and discuss the DCC's recommendations. Based on the DCC's
discussion with the District's ICMA-RC representatives and the survey taken of other
agencies, the DCC recommends that the District consider adopting a resolution
(Attachment 3) to make 457 loans available to employees.
The Loan Guidelines Agreement and Application, filled out according to consensus of
the DCC and Administration Committee, is attached (Attachment 4) and a summary of
its provisions is set forth below. The bullets are the features recommended by the DCC
and Administration Committee; the italicized wording offers explanatory notes and/or
indicates less restrictive options allowed by the IRS and ICMA-RC.
Eligibility and Loan Source
• Loans allowed from 457 Plan only
• Account balance used to determine maximum loan will include Roth Account
(Other options are to allow loans on the 401 and not include the Roth Account as a
source for loans under the plan.)
Page 2 of 4
POSITION PAPER
Board Meeting Date: August 18, 2016
Subject ADOPT RESOLUTION ALLOWING PARTICIPANTS TO BORROW FUNDS
FROM THE DISTRICT'S 457 DEFERRED COMPENSATION PLAN
Loan Purpose
• Loans will be allowed for all purposes
(Choices are "All Purposes"or"Hardship Only." Hardship only would require more of an
administrative burden for the District as mentioned above. The IRS allows for
emergency withdrawals and this would be for situations in addition to the allowable
hardships under the IRS regulations.)
Maximum Number of Loans
• 1 at a time
(IRS allows up to 5 maximum.)
Loan Amount
• Minimum $1,000
• Maximum $50,000 or half the value of the participant's 457 account
(Per IRS regulations.)
Length of Loan
e 5 years maximum for all loans except primary residence loans
• 10 years maximum for primary residence loans
(While the maximum repayment period for a residential loan can be up to 30 years, the
maximum recommended by the DCC is 10 years.)
Loan Repayment Method
• Repayment method —ACH debit only
(ACH minimizes District administrative burden and loan monitoring. Other options are
payroll deduction or a choice of either.)
Repayment frequency—'monthly ACH debit
(In accordance with the District's payroll frequency. Participant sets up auto payment
with I CMA-RC directly.)
Loan Interest Rate
• Non-residential loans at the prime rate plus 0.05%
• Primary residence loans at the Federal Housing AdministrationNeterans Affairs
(FHANA) rate
Other Provisions
• Security/collateral — participant's account balance
• Separation of Service
o Outstanding loan shall be due and payable by a participant upon
distribution of their entire account balance.
o if the loan is not paid at separation of service, the employee should
continue paying through ACH debit. If the loan is defaulted, ICMA-RC will
Page 3 of 4
POSITION PAPER
Board Meeting Date: August 18, 2016
Subject-" ADOPT RESOLUTION ALLOWING PARTICIPANTS TO BORROW FUNDS
FROM THE DISTRICT'S 457 DEFERRED COMPENSATION PLAN
send the participant and the District several notices when an offset from
the participant's account takes place for the balance of the unpaid loan;
ICMA-RC will issue a 1099 for the current loan balance plus accrued
interest. The DCC confirmed with ICMA-RC representatives on July 15,
2016 that ICMA-RC will enforce this action.
• Reamortization allowed (change in terms) — 5 year maximum, differs for
residential
• Refinance allowed (new loan replacing outstanding loan)
• Reduction of loan — upon death, unpaid loan amount settled by account balance
and becomes a taxable distribution
• Deemed (default) distributions — calendar year quarterly
• Fees —.$50 application fee, and $50 annual fee deducted from account
ALTERNATIVES/CONSIDERATIONS: Do not allow loans from the 457 Deferred
Compensation Plan. This is not recommended, as offering a loan program has been
requested by a number of employees and is a benefit commonly provided by many
other government agencies.
FINANCIAL IMPACTS: None. ICMA-RC would assume the administration of the
program, with minimal support required from District staff, and all loan fees would be
paid by the borrower.
COMMITTEE RECOMMENDATION: The Administration Committee reviewed this item
at its August 8, 2016 meeting and consulted with ICMA-RC's Michele Martin. Following
discussion, the Administration Committee recommended that the Board take the
necessary steps to allow participants to take loans from their 457 Deferred
Compensation Plan under the terms outlined above.
RECOMMENDED BOARD ACTION: Adopt a resolution allowing participants to borrow
from the District's 457 Deferred Compensation Plan, and authorize District staff to
implement the loan agreement with ICMA-RC as soon as practicable after Board
approval.
Attached Supporting Documents:
1. Employer Guide to Direct Loans with ACH Debit Loan Repayments
2. Results of Multi-Agency Survey re:Deferred Comp Loan Plans
3. Proposed Resolution
4. Loan Guidelines Agreement and Application
Page 4 of 4
ATTACHMENT 1
EMPLOYER
GUIDE TO DIRE(T LOANS
WITH A(H DEBIT LOAN REPAYMENTS C ARC
Building Retirement Security
The purpose of this guide is to provide plan sponsors with the procedures to administer their loan program. If you have any
questions,please contact the Client Services Team at 800-326-7272.
PROCESS PARTICIPANT ICMA-RC PLAN SPONSOR
RESPONSIBILITY RESPONSIBILITY RESPONSIBILITY
Requesting a New or Participants can go online(Account Online loans requested None
Refinanced Loan Access) to apply for a new loan via Account Access are
or refinance an existing loan.(A processed systematically. *If the employer wants to
refinanced loan allows a participant to assist a participant with loan
borrow an additional amount,which Loan requested through modeling, it can be accessed
is added to an existing loan balance.) an Investor Services through EZLink under the
Representative are Participant Info tab, then
Participants can speak to an Investor processed systematically. Loan Modeling
Services Representative by calling 800-
669-7400 and apply for a new loan or Completed Direct Loan/
refinance an existing loan. Refinance Forms received
in good order by 4:OOpm
Participants can also request that Eastern Time*will
a Direct Loan/Refinance Packet be processed within 3
be emailed,faxed,or mailed.The business days.
completed form needs to be returned
to ICN1A-RC as instructed in the *Ifthere is an early close
packet. of the New York Stock
Exchange, all requests must
be received in good order by
the adjusted closing time.
Starting Loan The participant will receive the loan ICMA-RC will initiate None
Payments check along with the Disclosure monthly ACH Debits
Statement,Promissory Note,Truth- from the participant's
in Lending Rescission Notice and financial institution.
Amortization Schedule for his/
her records. Presentment of the
check for payment constitutes an
acknowledgement that the participant
has received and read the loan
disclosure materials provided and
agrees to the terms of the loan.
PROCESS PARTICIPANT ICMA-RC PLAN SPONSOR
RESPONSIBILITY RESPONSIBILITY ••
Advance Loan Advance Loan Repayments are not ICMA-RC will apply the None
Repayments available through Account Access. increased loan payment
amount to the loan.The
The advanced payment must be a increased payment will be
multiple of the payment amount(i.e., applied to both interest
if the payment amount due is$50.88, and principal.There is no
the payment sent to ICMA-RC is penalty or additional fee.
$101.76 [$50.88 x 21 or$152.64
[$50.88 x 31,etc.).
Extra payments are applied forward to
the principal and interest as stipulated
in the amortization schedule.Please
note that the next regularly scheduled
loan payment is still due as scheduled.
Advanced loan payments to do not
allow participants to skip subsequent
loan payments.
Participants can mail either a Cashier's
Check or a Money Order to:
For 457 plans:
Vantagepoint Transfer Agents—457
c/o M&T Bank
P.O.Box 64553
Baltimore,MD 21264-4553
For 401 plans:
Vantagepoint Transfer Agents—401
c/o M&T Bank
P.O.Box 64668
Baltimore,MD 21264-4668
The reference line on the check must
include the plan number,the par-
ticipant's reference code and the loan
number.No personal checks will be
accepted by ICMA-RC.
EMPLOYER1 O DIRECT LOANSDEBIT LOAN
PROCESS PARTICIPANT
.. . PLAN
. .• •
RESPONSIBILITY .O B RESPONSIBILITY
Advance Loan Payoff Participants may go online to Account The loan payoff will be None
Access to pay off their loans via ACH systematically processed
Debit. accordingly.
Reamortized Loans** Participants can call Investor Services Upon receipt of None
Services at 1-800-669-7400 and the completed loan
request a Loan Reamortization reamortization form in
Packer.The completed form with good order,the request
the participant's signature must be will be processed and
returned to ICMA-RC. the loan documentation
(including the new
`*Reamortized loans Reamortization of a loan allows a amortization schedule) is
are not available on- participant to request a change in mailed to the participant.
line through Account the terms of an existing loan,such
Access as interest rate,length of repayment
period,and frequency of payments.
Note:A loan may not be reamortized to
extend the length of the loan repayment
to more than five years from the date the
loan was originally made, or in the case
of a loan to secure a primary residence,
beyond the number ofyears specified by
your plan's loan guidelines.
Suspend Loan Loan payments can be temporarily Upon receipt of the loan The employer must contact
Repayments suspended,if needed,when a payment suspension ICMA-RC(in writing) to
participant has been granted a leave of authorization from the provide notification of the
absence from his/her employer. employer in good order, participant(s)who is(are)on
ICMA-RC will process a leave of absence from work
The maximum loan payment the request.This will and to authorize temporary
suspension is one year.Loan prevent the loan(s) from loan repayment suspension.
suspension due to active military duty- becoming delinquent
can be suspended for the duration of during the leave of The maximum loan
the active military service. absence period. repayment suspension is one
year.Loan suspension due to
Note:Suspended loan payments do not When ICMA-RC active military duty can be
change the terms of the loan. When the is notified that the for the duration of the active
participant returns to work,he/she can participant has returned military service.
either catch-up their loan payments to work,the loan will be
via an advance loan repayment or reamortized accordingly. The employer must notify
reamortize the loan. Reamortization ICMA-RC when the
will not allow the participant to exceed The loan repayment cycle participant returns to work.
the applicable maximum term of the will begin again on the
loan. date the leave of absence Note:Suspended loan
is ended.The loan payments do not change the
payments are expected to terms of the loan. When the
resume upon participant's participant returns to work,
return to wo& he/she can either catch-up
their loan payments via payroll
deduction or reamortize the
loan.Reamortization will not
allow the participant to exceed
the applicable maximum term
of the loan.
PROCESS PARTICIPANT ICMA-RC PLAN SPONSOR
RESPONSIBILITY RESPONSIBILITY RESPONSIBILITY
Delinquent Loans A loan can become delinquent when ICMA-RC will mail The employer has a fiduciary
ICMA-RC has incorrect bank account the participant a letter responsibility to monitor
information on file or there are if the bank information delinquent loans.
insufficient funds in the participant's provided by the
bank account. Several notices are participant rejects during The delinquent loan
mailed to the participant to prevent a the prenote process,or if notice will only show the
delinquent loan. a payment rejects. participants who were
recently mailed a notice
A prenote reject letter is sent when A delinquent loan notice based on the delinquency
ICMA-RC has incorrect bank account is then mailed at 30- interval processed. (i.e. Ms.
information on file.A payment day,60-day and 90-day Jones might be on the list
reject letter is sent when a payment intervals,if no action is this week for a 30-day loan
rejects due to insufficient funds in the taken by the participant. delinquency,but on the next
participant's bank account or incorrect ICMA-RC will also report,if she is not yet at the
bank account information. mail the employer a 60-day interval,she may not
delinquent loan report appear on the report.This
If no action is taken to restart that identifies participants does not mean the loan is no
payments,a participant will then be who were recently mailed longer delinquent.)
mailed a delinquent loan notice at a delinquent loan notice.
30-day,60-day and 90-day intervals
The participant is expected to make
the loan current.The participant
can send a cashier's check or money
order(as noted above in Advanced
Loan Repayments) for the delinquent
amount to make the loan current.
Participants also have the option to
reamortize their loans by contacting
Investor Services at 800-669-7400 for
a Loan Reamortization Packet.
(When participants call Investor Services
[as instructed in the delinquency letter],
they will be advised of these options.)
EMPLOYER1 I DIRECT1 DEBIT LOAN
PROCESS PARTICIPANT ICMA-RC PLAN SPONSOR
RESPONSIBILITY RESPONSIBILITY RESPONSIBILITY
Correcting/Changing The participant should correct/ When a participant None
Bank Information confirm their bank information confirms the bank
through Account Access when they information,ICMA-RC
receive a prenote reject letter or reactivates the current
payment reject letter.The participant bank information.When
should also use Account Access to a participant corrects
update their bank information if there the bank information,
is a change to the account from which ICMA-RC deactivates
loan payments should be made. the old bank information
and activates the new
If the participant does not have information(for a
internet access, the Automatic correction).
Bank Account Debit Authorization
Form for Loan Repayments can A catch-up loan
be submitted to have the bank repayment for the total
information confirmed or corrected by amount of any payments
ICMA-RC. missed, if applicable, is
processed upon receipt
of updated bank account
information.
Deemed Distributed A loan typically becomes a deemed ICMA-RC reports the It is a plan sponsor's
Loans distribution when scheduled pay- deemed distributed loan fiduciary obligation to
ments are not made in adherence with to the IRS on a form properly manage the
the granted cure period*. If the total 1099-R. retirement plan and its
amount of all delinquent payments benefits.Mismanagement of
is not received by the end of the cure your loan program may be
period,the loan is deemed a distribu- considered failure to meet
tion.The current loan balance plus this fiduciary obligation and
any accrued interest up to the date of may expose a plan sponsor
the deemed distribution is now taxable to litigation,in addition
to the participant. to being in violation
of applicable laws and
The deemed distribution is a taxable regulations. Employers,as
event. However,it is not an actual plan sponsors and fiduciaries,
benefit payment.The outstanding have an obligation to comply
loan balance and accrued interest with plan document and
are reported on the participant's loan guideline requirements
statement.The loan continues to applicable to participant
be considered outstanding until it loans. Loan repayments
is repaid or"offset."An offset will must be made in accordance
occur when the participant has a with the plan document
distributable event based on current and plan loan guidelines as
plan settings. reflected in the promissory
note.
The participant will be required to
repay any outstanding deemed dis-
tributed loan balance before they can
become eligible for a new loan. Repay-
ment of a deemed distribution will
not change or reverse the taxable event
once it has occurred.
*The maximum allowable cure period is
the end of the calendar quarter following
the calendar quarter in which the pay-
ment was due.
PROCESS PARTICIPANT ICMA-RC PLAN SPONSOR
RESPONSIBILITY RESPONSIBILITY .•
Overpayments/ None When a loan is paid off or None
Refunds offset,any overpayment
will be refunded to the
participant.
EMPLOYER1 O DIRECT LOANSDEBIT LOAN
ICM/RC
Building Retirement Security
I(MA RETIREMENT CORPORATION
117 NORTH CAPITOL STREET,NE
WASHINGTON,D(20002-4240
800-326-7272
WWW.ICMAR(.ORG
BRCO00-160-0208-1969-862
Deferred Comp Loan Research ATTACHMENT 2
June 2016 Central Contra Costa Sanitary District
Agency Do employees have 457 Does the agency have a 401a Are loans allowable Are loans allowable on 401a?
option? plan? on 457?
City of Millbrae- Kenneth Spray,City No No N/A N/A
of Millbrae
City of San Diego-Gilda Smith, Yes Yes No No
Employee Savings Administrator,
gcsmith@sandiego.gov
Contra Costa Water District(CCWD)- Yes Yes Yes Yes
Sonja Stanchina, HR Supervisor,
sstanchina@ccwater.com
Delta Diablo-Theresa Harris Yes Yes Yes Yes
theresah@deltadiablo.org
Dublin San Ramon Services District- Yes No Yes N/A
Karen Vaden,vaden@dsrsd.com
East Bay Municipal Utility District Yes Yes No Yes
(EBMUD)- Dhanyale Dunbar, HR Tech,
ddunbar@ebmud.com
Fairfield-Suisun Sewer District- Yes Yes No Only for managers
hgaumann@fssd.com
Deferred Comp Loan Research
June 2016 Central Contra Costa Sanitary District
Agency Do employees have 457 Does the agency have a 401a Are loans allowable Are loans allowable on 401a?
option? plan? on 457?
Las Gallinas Valley Sanitary District- Yes No No* N/A
Susan McGuire,smcguire@Igvsd.org
Napa Sanitation District-Jeff Tucker Yes No Yes N/A
707-258-6000
Novato Sanitary District- Yes Yes Yes Yes
LauraC@novatosan.ocom
Oro Loma Sanitary District-Arlene Yes Yes Yes Yes
Wong arlene@oroloma.org
San Francisco Public Utilities Yes No No No at this time, but San
Commission (SFPUC)- Francisco Deferred
sfersconnect@sfgov.org Compensation Plan (SFDCP) is in
the process of developing a loan
program to be implemented in
the near future.
Union Sanitary District-Maria Buckley Yes Yes. They have three plans: 1) Yes Yes
mariab@unionsanitary.com GM, 2)Work Group Mgrs, 3)
Professional Staff. All in the plan
must agree to contribute the
same amount,you cannot stop
contributions once you have
started.
Deferred Comp Loan Research
June 2016 Central Contra Costa Sanitary District
Agency Do employees have 457 Does the agency have a 401a Are loans allowable Are loans allowable on 401x?
option? plan? on 457?
West County Wastewater District- Yes No Yes N/A
Lisa Adamson ladamson@wcwd.org
* Per Susan McGuire,Administrative Services Manager at Las Gallinas Valley Sanitary District,they considered but decided not to offer loans due to
administrative issues in tracking repayment and remitting, and "saving people from themselves." When she was in public accounting she used to audit
401k plans and would see people taking out small loans (—$1k)then having multiple loans etc.She said it can become a headache from the employer's
point of view and be a detriment to employees since they are out of the market with their loan balances.
Loan Summary
457 401
Yes 8 6
No 5 2
N/A. 1 5
Managers On - 1
Tota14 14
ATTACHMENT 3
RESOLUTION NO. 2016-033
A RESOLUTION OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT
ALLOWING PARTICIPANTS TO BORROW FUNDS FROM THE DISTRICT'S 457
DEFERRED COMPENSATION PLAN
WHEREAS, the Central Contra Costa Sanitary District (the "Employer") has employees
rendering valuable services; and
WHEREAS, the Employer has established a 457 Deferred Compensation Plan #303896
for such employees that serves the interest of the Employer by enabling it to provide
reasonable retirement security and financial options for its employees by assisting in the
attraction and retention of competent personnel; and
WHEREAS, the Employer has determined that permitting participants in the retirement
plan to take loans from the Plan will serve these objectives.
NOW, THEREFORE, BE IT RESOLVED that the Board of Directors of the Central
Contra Costa Sanitary District hereby approves the Loan Guidelines Agreement and
allows participants to borrow funds from the 457 Deferred Compensation Plan.
PASSED AND ADOPTED this 18th day of August 2016, by the Board of Directors of the
Central Contra Costa Sanitary District by the following vote:
AYES: Members:
NOES: Members:
ABSENT: Members:
Tad J. Pilecki
President of the Board of Directors
Central Contra Costa Sanitary District
County of Contra Costa, State of California
COUNTERSIGNED:
Elaine R. Boehme, CMC
Secretary of the District
Central Contra Costa Sanitary District
County of Contra Costa, State of California
Approved as to form:
Kenton L. Alm, Esq.
Counsel for the District
ATTACHMENT 4
Bc SRC
BUILDING PUDIIC SECTOR LOAN GUIDELINES AGREEMENT
RETIREMENT SECURITY
The purpose of this agreement is to establish the terms and conditions under which the Employer will grant loans to participants.You
should consider each option carefully before making your selections because your selections will apply to all loans made while the
selection is in effect.If you later change any provision,the changes will apply only to loans made after the change is adopted.Loans
in existence at the time of any future changes will continue to operate under the guidelines that were in effect at the time the loan was
originally made.
Please read the instructions and carefully complete all sections of this agreement.
®New Loan Program ❑Amendment to Loan Program
I. EMPLOYER PLAN INFORMATION
Name of Plan (Enter the complete Employer name,including state):Geer ra 1 Contra roc;tA Sarni to=r Di-'tri Ct
Plan Type: U 457 Deferred Compensation Plan ❑401(a)Money Purchase Plan ❑401 Profit-Sharing Plan
ICMA-RC Plan Number: 3 0 3 8 9 6
II. ELIGIBILITY&LOAN SOURCE
Loans are available to all active employees,except those with an existing loan in default.
401 Plans—If your 401 plan is funded by a combination of Employer and Employee contributions,you must specify whether one or
both of the following can be used as a source for participant loans.(Select one or both options below)
❑Employer Contribution Account(nested balances only)
❑Participant Contribution Accounts(pre-and post-rax,ifapplicablr,including Employee Mandatory,Employee Voluntary,Employer RoBooer,
and Portable Benefits Accounts,but excluding the Deductible Employee Contribution/Qualified Voluntary Employee(.'attribution Account)
Roth Assets(ifopplicable)—If your 457 or 401(k)plan allows Roth contributions,a participant's Designated Roth Account balance will
be included when calculating the amount a participant is eligible to borrow. However,you must specify whether or not a participant's
Designated Roth Account can be used as a source for participant loans. (Select one option below)
❑A participant's Designated Roth Account will not be available as a source for loans under the plan(default option)
K A participant's Designated Roth Account will be available as a source for loans under the Plan.
Note:If Roth assets are available as a source for loans,a loan that is deemed distributed will not satisfy the requirements for a qualified(tax-free)
distribution of Roth assets. This may result in participants paying taxes on asset,that would otherwise be available tax free.
III. LOAN PURPOSE
Loans are available for the following purposes and must be requested in the corresponding method(select one):
®All Purposes—With this option,participants can request a loan for any reason. Participants will be able to request new loans or
refinance existing loans using the Online Loans option.
❑Hardship Only—With this option,loans shall only be granted in the event of a participant's hardship or for the purpose of enabling
a participant to meet certain specified financial situations.Participants will need to complete the loan application form for your plan
and obtain your approval(Online Loans it not available).
The employer shall approve the participant's loan application after determining,based on all relevant facts and circumstances that the
amount of the loan is not in excess of the amount required to relieve the financial need,as defined by the employer.For this purpose,
financial need shall include,but not be limited to:unreimbursed medical expenses of the participant or members of the participant's
immediate family,establishing or substantially rehabilitating the principal residence of the participant,or paying for a college education
(including graduate studies)for the participant or his/her dependents.
LOAN IMPLEMENTATION PACKAGE FOR 457/401 PLAN SPONSORS 1 7
REV 7/2015
LOAN GUIDELINES AGREEMENT
IV. APPLICATION PROCESS
The loan application process will vary depending on the option you selected in Section III above(Loan Purpose).
(A)ALL PURPOSES
• Online Loans—Participants can request a new loan or to refinance an existing loan using
the ICMA-RC websire at www.icmarc.org(Online Loans).
• Direct Check Issuance—ICMA-RC sends loan documents with the loan check to the participant.When the participant
endorses the check,that endorsement signifies acceptance of loan terms.
(B)HARDSHIP ONLY
• Paper Application—A loan application must be completed,signed by the participant and approved by you,the employer.
• Check Issuance--Upon receipt of an approved loan application,ICMA-RC will prepare the required loan documents(i.e.,the
promissory note and loan disclosure statement),and send them to the employer with the loan check.
– The loan check may not be given to the participant until the loan documents have been signed by the participant.Because
the promissory note is considered a plan asset,all loan documents must be completed and preserved for at least the life of the
loan.The employer should retain the original loan documents and send copies of all documents to ICMA-RC
The loan amount will generally be redeemed from the employee's account on the same day as either ICMA-RC receipt of a loan request/
application(complete and in good order),if it is submitted prior to 4:00 p.m.ET on a business day.If not,the loan amount will be
redeemed on the next business day following submission.The loan check for an all purpose loan is generally issued on the next business
day following redemption,and will be mailed directly to the employee.The loan check for a hardship loan will be sent to the employer.
The employee's presentment of the loan check for payment constitutes an acknowledgment that the employee has received and read the
loan disclosure information provided by ICMA-RC and agrees to the terms therein.
V. MAXIMUM NUMBER OF LOANS(SELECT ONE)
Participants may receive one loan per calendar year.Please specify whether participants may have only one(1)or up to five(5)loans
outstanding at one time.
®One(1).Participants may have only one(1)outstanding loan at a time.
❑Five(5).Participants may have up to five(5)loans outstanding at one time.
❑Other.Participants may have up to (enter 2,3,or 4)loans outstanding at one time.
VI. LOAN AMOUNT
Maximum:The maximum amount of all loans to a participant from the Plan and all other plans of the Employer that are either eligible
deferred compensation plans described in section 457(6)of the Code or qualified employer plans under Section 72(p)(4)of the Code
(e.g.,401(a)plans)shall not exceed the Lesser of
(1) $50,000,or
(2) One-half of the value of the Participants interest in all of his or her Accounts under this Plan.
When calculating the maximum amount a participant is eligible m borrow from his/her account,the lesser value of(1)or(2)above must
be reduced by the participant's highest outstanding loan balance over the past 12 months.
Minimum The minimum loan amount is$1,000.
A loan cannot be issued for more than the maximum amount.The participant's requested loan amount is subject to downward
adjustment without notice due to market fluctuation between the time of application and the time the loan is issued.
Loan amounts will be taken pro-rata from all of a participant's investments.
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VII. LENGTH OF LOAN
Loans must be repaid in substantially equal installments of principal and interest over a period that does not exceed five(5)years.
Principal Residence Loans
If the participant will be using the loan to purchase a principal residence,the five(5)year time limit may not apply.Participants can
repay a principal residence loan over a period of up to 30 years.Please specify the maximum repayment period for principal residence
loans from your plan below.
Maximum repayment period for principal residence loans= 10 (Entera number ofyears,up to 30)
VIII. LOAN REPAYMENT PROCESS
Specify the repayment method(s)and repayment frequency your plan will use.Note that loan amounts plus interest,minus applicable
fees paid to ICMA-RC,are repaid to participant accounts and not to ICMA-RC.You can allow repayments to be made via payroll
deduction and/or ACH payments from a participant's bank account.Loan repayments must be made at least monthly(457)or
quarterly(401).
Repayment Method(Select One):
...................................................................................................................................................................................
❑Payroll deduction only.
EACH debit only.*
❑Employee may choose either payroll deduction or ACH debit'
`ACH Payment Rejected Fee—If a loan repayment scheduled to be paid via ACH debit is rejected due to insufficient funds,invalid bank account
information,or account closure,a fee will be charged to the participant's account. The fee is$20 far the first occurrence and$50 far each subsequent
occurrence.
Repayment Frequency(Select One):
...................................................................................................................................................................................
Repayments through payroll deduction will be sent via check or wire by the Employer to ICMA-RC on the following cycle(choose one):
❑Weekly(52 per year)
❑Eli-weekly(26 per year)
❑Semi-monthly(24 per year)
®Monthly(12 per year)
Initiating Repayments:
• ACH debits from the employee's designated bank account will begin approximately one month following the date the employee's
signed ACH authorization form is received and processed by ICMA-RC,or,in the case of online loans,approximately one month
following the date the loan check has been cleared for payment. Debits will normally be made on a monthly basis.
• Payroll deduction should begin within two payroll cycles following the employee's receipt of the loan. Employees using this
method must notify the Employer immediately so that repayments will begin as soon as practicable,on a date determined by
the Employer's payroll cycle.Failure to begin payroll deduction in a timely manner could lead to the employee's loan entering
delinquency status.
Investment of Loan Repayments
All loan repayments are invested according to the instructions the participant has on file for the investment of contributions to his/her
account.
Additional Loan Repayments and Early Pay-Off
A participant may pay off all or a portion of the principal and interest early without penalty or additional fee.Extra payments are applied
forward to both principal and interest as specified in the original repayment schedule,unless the additional payment is for the full
balance due.Please note that no payment date may be"skipped"even if the employee has made a large payment or submitted multiple
payments.
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VIII. LOAN REPAYMENT PROCESS (coanxuw)
Loans in Default
Participants using the ACH repayment option may default on their loans for lack of repayment more frequently than those using the
payroll deduction method.For this reason,you may choose to require that certain participants use the payroll deduction repayment
method.
Multiple Loans
If a participant has multiple loans outstanding from the plan,each loan repayment must be separately reported to[CMA-RC.
Former Employees and Leave of Absence
Former employees and employees on a leave of absence must repay their loans on the same schedule that would have applied had they
continued employment.
Your plan may allow terminated employees to continue to repay their loans either through ACH,or by giving/sending you a check each
repayment period(see the Acceleration section).If you allow terminated employees to repay loans by giving/sending you a check,you
will include the repayment amounts in your next regular employee contribution remittance to ICMA-RC.
In certain situations,employers may suspend loan repayments for a period of time for employees on a leave of absence or military leave.
Please refer to Treasury Regulation section 1.72(p)-1,Q&A-9 for more information.
Repayments Must Continue
In implementing a loan program you should be aware that some employers have had to contend with the inability of some participants
to repay their loan(s).You should be aware that you may not stop taking loan repayments from the employee's paycheck—even if the
employee asks that repayments be stopped.Failure to payroll-deduct loan repayments on schedule could both jeopardize the eligibility or
qualification of the entire plan as well as create a taxable event for the participant.Likewise,if an employee is repaying the loan through
ACH debit of his/her bank account,and the employee fails to make payments,this could jeopardize the eligibility of your retirement
plan.Employers are ultimately responsible for ensuring that loans are repaid according to the loan terms.
IC:MA-RC:will notify both you and the employee if a payment has not been received.
IX. LOAN INTEREST RATE
The loan interest rates are set for non-residential loans at the prime rate plus 0.5%,and for principal residence loans at the FHA/VA rate.
The interest rate for new loans fluctuates from month-to-month.The rates for the following month are determined on the last business
day of the month using www.moncycafe.com/library/primerate.htm(prime rate)and www.citimortgage.com(principal residence rate).
When a new loan is approved,the interest rate is locked in and remains constant throughout the life of the loan.
X. SECURITY/COLLATERAL
At the time a loan is taken,50 percent of the participant's account balance or the amount of the loan,whichever is less,will be used as
collateral for the loan.
XI. ACCELERATION (SELEa ONO
Please specify whether participants who have separated from service will be able to continue loan repayments until they have
withdrawn their entire account balance from the plan,or if outstanding loans will be due and payable at the time the participant
separates from service.
All outstanding loans shall be due and payable by a participant upon:
❑Separation from service.All loan repayments must stop following an employee separating from service.
®Distribution of his/her entire account balance.Employees can continue making loan repayments until they have withdrawn their
entire account balance.
Outstanding loan balances that are not repaid will be reported as distributions to the participant.See the Deemed Distributions section
for additional information.
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XII. REAMORTIZATION
Reamortization changes the terms of an outstanding loan(e.g.,repayment period, interest rate,frequency of repayments).Any
outstanding loan may be reamortized.
Reamortization cannot extend the repayment period beyond five(5)years from the date the loan was originally issued.Or, in the case of
Principal Residence Loans,beyond [the number of years specified in Section VIII years from the date the loan was originally issued.
Participants can use a loan amortization form to request that an outstanding loan be reamortized. Upon processing the request,a
new disclosure statement will be sent to the employer for endorsement by the participant and approval by the employer.The executed
disclosure statement must be returned to the plan administrator within 10 calendar days from the date it is signed.The new disclosure
statement is considered an amendment to the original promissory note;therefore a new promissory note will not be required.
Note.A loan reamortization will not be considered a new loan for purposes ofealculating the number of loans outstanding or the one loan per calendar
year limit.
XIII. REFINANCE
Refinancing involves a new loan replacing an employee's outstanding loan.The refinanced loan must be repaid over a period that does
not exceed five(5)years from the date when the original loan was issued.
Actively employed participants with one(1)outstanding loan may elect to refinance the outstanding loan for an additional amount,
subject to the loan amount limitations outlined in Section VE, provided that the participant has not yet taken out a loan during the
calendar year. Participants with multiple outstanding loans, and those who are no longer employed, are not eligible to refinance an
existing loan.
Note.Principal residence loans are not eligible for refinanre.
XIV. REDUCION OF LOAN
If a participant dies prior to full repayment of the outstanding loan(s),the outstanding loan balance(s)will be deducted from the account
prior to distribution to the beneficiary(ies).The unpaid loan amount is a taxable distribution and may be subject to early withdrawal
penalties.The participant's estate is responsible for taxes and penalties on the unpaid loan amount, if any.A beneficiary is responsible for
taxes due on the amount he or she receives.A Form 1099 will be issued to both the beneficiary and the estate for tax reporting purposes.
XV. DEEMED DISTRIBUTIONS
A loan will be deemed distributed when a scheduled payment is still unpaid at the end of the calendar quarter following the calendar
quarter in which the payment was due.When a loan is deemed distributed,the principal balance and any accrued interest is repotted to
the IRS as a taxable distribution.However,since the participant received the loan amount previously,no money is actually paid to the
participant as part of a deemed distribution.
The loan is deemed distributed for tax purposes,but it is not an actual distribution and therefore remains an asset of the participant's
account. Interest continues to accrue.The outstanding loan balance and accrued interest are reported on the participant's account
statements.
Repayment of a deemed distribution will not change or reverse the taxable event.
The loan continues to be outstanding,and to accrue interest,until it is repaid or offset using the participant's account balance.An
offset can occur only if the participant is eligible to receive a distribution from the plan as outlined in the plan document. Participants
are required to repay any outstanding loan which has been deemed distributed before they can be eligible for a new loan.The deemed
distribution and any interest accrued since the date it became a taxable event is taken into account when determining the maximum
amount available for a new loan.New loans must be repaid through payroll deduction.
important Note. The employer is obligated by federal regulation to comply witb the loan guideline requirements applicable to participant loans,and to ensure
against deemed distribution by monitoring loan repayment,,regardless of the method of repayment,and by advising employees if loans are in danger ofbeing
deemed distributed. The tax-qualified status or eligibility of the entire plan may be revoked in rases of frequent repayment delinquency or deemed distribution.
To assist plan sponsors whose plan options include loans,ICMA-RC will provide reports of participants with payments delinquent by
30 to 89 days,90 or more days but not yet deemed,and those whose loans have been deemed distributed. ICMA-RC is committed to
supporting employers who request assistance with their loan programs in order to reduce the number of delinquent loans and decrease
the occurrence of deemed distributions.
LOAN INHENENTATION PA(RAtE FOR 457/401 PLAN SPONSORS ( II
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LOAN GUIDELINES AGREEMENT
XVI. FEES
Fees may be charged for various services associated with the application for and issuance of loans.All applicable fees will be debited from
the participant's account balance and/or from the participant's loan repayments prior to crediting the repayment of principal and interest
to the participant's account.
XVII. SIGNATURES
The Employer has the right to set other terms and conditions as it deems necessary for loans from the plan in order to comply with any
legal requirements. Employer certifies that all terms and conditions will be administered in a uniform and non-discriminatory manner.
In Witness Whereof, the employer hereby caused these Guidelines to be executed
this day of 20
0.7 frb,AlamA MonrA Via,
EMPLOYER
By:
Title:
Attest:
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