On Friday afternoon, March 27th, Congress passed, and the President signed, the Coronavirus Aid, Relief, and Economic Security (CARES) Act - sweeping legislation intended to provide much-needed relief due to the coronavirus public health emergency. At nearly 1,000 pages in total, the legislation covers a lot of ground in a many areas. With respect to company-sponsored retirement plans, the relief focuses on four areas:
Topic Archive: Participant Loans
Our 401(k) plan allows participants to take loans from their accounts. We have a written policy that describes how the loans work and spells out the requirements that the plan and participants must follow. Among other details, the loan policy indicates that payments must be made via payroll deduction.
The participants in my company’s 401(k) plan are regularly inquiring about how much money they have available for a loan. When I report back the amount available to them, it’s not unusual for me to hear groans and exclamations from them that “this is my money” (particularly if they’re disappointed they aren’t able to access more). I know there are certain parameters related to participant loans set forth in the plan document, but it seems like there’s more to the magic formula that I’m just not able to explain to the participants.
While not quite as ominous as a battle with the Night King, dealing with participant loans in retirement plans can be a daunting challenge for plan sponsors. Because of Congress’ concerns about protecting plan assets from improper use by participants and plan sponsors alike, the loan rules are strict and unforgiving.
The IRS did its part to make Friday, April 19th a really good Friday for those who sponsor qualified retirement plans. After not making many friends when it jacked up the user fees for the Voluntary Correction Program (VCP) a year or so ago, the IRS has responded to industry requests (that DWC representatives helped draft) by now allowing plan sponsors to self-correct a number of more common missteps without the need to submit anything to the IRS at all.
Plan Loans & Past Participants: What Happens to a Participant's Loan Balance When They Terminate Employment?
We have a participant who took a loan from his 401(k) account at the beginning of the year. Yesterday, he gave us notice of his resignation, effective in two weeks, but he still has an outstanding loan balance.
A participant in our 401(k) plan took out a loan a couple years ago. She could only afford to make the bare minimum payments at the time, but is now in a financial position to pay down the loan more quickly.
We have selected a new recordkeeper for our 401(k) plan. We are told that there will be a period of eight business days when our participants are not able to log in and manage their accounts. We know that we have to provide notice at least 30 days ahead of time to everyone who is affected.
One of the participants in our 401(k) plan just applied for a loan for $25,000. He has enough in his account to support the loan, but there is a bit of a wrinkle. We are planning to reorganize the department he works in, and his position is scheduled to be eliminated in about a month.