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General Loans Topics - Nationwide Retirement Solutions and ICMA-RC 457(b) Deferred Compensation Plans
The deferred compensation plan documents have been amended to allow loans for all purposes as of March 1, 2009.
Disadvantages of obtaining a loan
The amount of interest a participant pays on a loan may be less than the money would have earned had it been invested during the time it takes to repay the loan. Employees may be inclined to stop or decrease contributions to their account as they try to pay off the loan. Loan repayments are with post-tax dollars. If the participant does not repay the loan, when due, the outstanding balance becomes taxable income. Money intended for retirement is reduced.
Loan restrictions and limitations
The maximum amount that can be obtained on a loan is lesser of 50% of the deferred compensation account balance or $50,000. There is no restriction on the use of the loan.
The maximum loan amount is a combined limit for both plans offered. Therefore, if an employee participates in both ICMA-RC and NRS, the combined maximum loan they could receive is the lesser of 50% of the account balances or $50,000.
For general loans, the repayment may be up to 5 years. However, the maximum term for loans, for the purchase a primary residence, is 15 years.
Loan interest is not tax deductible on your federal income tax returns.
Loan application process
NRS- The employee must contact the plan administrator at 877-677-3678 to request a loan package and answer a few questions to be screened for eligibility. The employee completes the loan application and returns it to the plan administrator.
ICMA-RC- The employee may request the loan package via telephone at 800-669-7400 or may complete the request via their website.
It takes two to three business days to process the loan request. The employee should receive payment within a week thereafter.
Only one loan is allowed per calendar year. Employees will be allowed to have only one loan outstanding at a time.
Loan interest rate calculation
The interest rate for ICMA-RC, is based on the prime rate + 0.5%. The interest rate, for NRS, is prime + 1%.
Loan repayment method
ICMA-RC and NRS will be performing all administrative functions related to the establishment and repayment of loans. Loans must be repaid from the participant’s bank account via ACH. Repaying the loan through payroll deductions is not an option.
There is no early payoff penalty.
Employee may continue to make biweekly payroll deferred compensation contributions while repaying a loan.
If an employee terminates employment with an outstanding loan, the employee may continue to repay the loan via ACH.
To request additional information contact:
ICMA-RC participants must contact ICMA-RC at 800-669-7400. NRS participants must contact NRS at 877-677-3678
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