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CC - Item 4E - ICMA 401A Plan Loan Amendment and Adopt Resolution No. 2021-03ROSEMEAD CITY COUNCIL TO: MAYOR AND CITY COUNCIL STAFF REPORT FROM: GLORIA MOLLEDA, CITY MANAGER f% .�/\ . DATE: JANUARY 26, 2021 SUBJECT: ICMA 401A PLAN LOAN AMENDMENT AND ADOPT RESOLUTION NO. 2021-03 SUMMARY The City currently contracts with ICMA to provide full-time employees with both a 457 Deferred Compensation plan and a 401A Profit -Sharing Plan for those hired before July 1, 2010. The 457 plan allows employees to make contributions on a pre-tax basis, which reduces their taxable income for the year. The 401A plan is funded by pre-tax contributions by the City. The amount contributed by the City is a percentage based off the employee's years of service. An added 401A plan feature that ICMA offers is a loan program where plan participants may take out loans against their own accounts. The program offers competitive interest rates and extremely low administration and origination fees. The City Council must approve an amendment to the current plan with ICMA by resolution to implement the new loan program. DISCUSSION In compliance with the Internal Revenue Code, ICMA offers a loan program for 401A Profit - Sharing plan participants. The unique component of loans under this program is that active employees are able to borrow from their own plan accounts, and all interest paid on the loan is deposited directly into the employee's account. Under the program, active employees are permitted to take out loans of up to 50% of their current plan balance, not to exceed $50,000. Such loans can be for any purpose and are not subject to the strict rules of the emergency withdrawal provisions. When implementing the loan program, the City must select certain options as part of the Loan Guidelines Agreement. Staff has proposed the following options: Section II — Eligibility and Loan Source: Employer Contributions will be used as the source for the loans. Section III — Loan Purpose: Participants will be able to obtain loans for emergency purposes. Section V — Maximum Number of Loans: Participants may have only one (1) outstanding AGENDA ITEM 4.E City Council Meeting January 26,2021 Page 2 of 2 loan at a time. Section VII —Length of Loan: Loans must be repaid over a period that does not exceed five(5)years. However,loans for principal residence must be repaid in substantially equal installments of principal and interest, at least monthly, over a period that does not exceed fifteen(15)years. Section VIII—Loan repayment process: Employee may choose either payroll deduction or ACH debit. If the employee opts for payroll deduction, repayment will be deducted from the employee's paycheck on a bi-weekly basis. Section XI—Acceleration: All loans are due and payable when a participant has withdrawn their entire account balance after separation from service. STAFF RECOMMENDATION Staff recommends that the City Council adopt Resolution No.2021-03,amending the ICMA 401A Retirement Plan to permit loans and authorize the City Manager to execute the Loan Guidelines Agreement (Attachment B). FISCAL IMPACT There is no financial impact to the City through the implementation of the ICMA 401A Plan loan program. STRATEGIC PLAN IMPACT None PUBLIC NOTICE PROCESS This item has been noticed through the regular agenda notification process. - ared b Elizabeth opescu Human Res.,urces Manager Attachment A: Resolution No. 2021-03 amending the ICMA plan to permit loans Attachment B: Loan Guidelines Agreement E M OS '9 CIVIC PRIDE 'NCORPORATEO ve Attachment A Resolution No. 2021-03 RESOLUTION NO. 2021-03 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ROSEMEAD, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, IN THE MATTER OF AMENDING THE ICMA-RC RETIREMENT PLAN TO PERMIT LOANS WHEREAS, the City of Rosemead has employees rendering valuable services; and WHEREAS, the City of Rosemead has established a retirement plan (the "Plan") for such employees which serves the interest of the City of Rosemead by enabling it to provide reasonable retirement security for its employees, by providing increased flexibility in its personnel management system, and by assisting in the attraction and retention of competent personnel; and WHEREAS, the City of Rosemead 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 City of Rosemead Section 401 Profit-Sharing Plan#106564 will permit loans. PASSED, APPROVED AND ADOPTED this 26th day of January,2021. Sandra Armenta, Mayor APPROVED AS TO FORM: ATTEST: Rachel Richman, City Attorney Ericka Hernandez, City Clerk STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) § CITY OF ROSEMEAD ) I, Ericka Hernandez, City Clerk of the City Council of the City of Rosemead, California, do hereby certify that the foregoing City Council Resolution No. 2021-03 was duly adopted by the City Council of the City of Rosemead, California, at a regular meeting thereof held on the 26th day of January, 2021, by the following vote, to wit: AYES: ARMENTA, CLARK, DANG, LOW, LY NOES: NONE ABSENT: NONE ABSTAIN: NONE Ericka Hernandez, City Clerk 4. 9 CIVIC 114*iir ,Th 14fCC)APOFIAISO 141 -;7 Attachment B Loan Implementation Packet ,(\' Loan Implementation Package for ICMkRC 457(b)/401(a)/403(b) Plan Sponsors BUILDING PUBLIC SECTOR RETIREMENT SECURITY TABLE OF CONTENTS Introduction and Summary Instructions 2 Basic information and instructions for implementing your plan's loan program. Loan Guidelines Agreement Instructions 3 Important information and instructions for completing the loan Guidelines Agreement Loan Guidelines Agreement 7 Complete this agreement to establish the guidelines for your plan's loan program. Maximum Loan Amount Worksheet 13 Use this worksheet to calculate the maximum loan amount that a participant is eligible to receive. Suggested Resolution 14 For use by plans whose governing body requires that a resolution be passed. 457(b)Plan Loan Administration Agreement 15 457(b)Plans Only.If you have multiple 457(b)plan providers,you must complete and return this document to ICMA-RC. Loan Amendment(401(a)Plans Only) 16 401(a)Plans Only.If you are amending your existing plan to add a loan program,you must complete and return this document to!CMA-RC. Loan Amendment(403(6)Plans Only) 17 403(6)Plans Only.If you are amending your existing plan to add a loan program,you must complete and return this document to!CMA-RC. Introduction and Summary Instructions for 457(b), 401(a), and 403(b) Plan Sponsors Making a loan program available in your retirement plan will provide eligible plan participants with the ability to borrow money from their accounts.As the administrator of your loan program,ICMA-RC will attempt to minimize the amount of resources you need to devote to the program.However,there are administrative and fiduciary responsibilities associated with offering loans which,as a practical matter,cannot be delegated to ICMA RC. Please review all of the information in this packet carefully prior to submitting the applicable forms to implement the loan program in your plan. The below instructions provide you with easy-to-follow steps to implement a loan program in your ICMA-RC 457(b)or 401(a) plan. STEP 1: Review the Loan Guidelines Agreement Instructions carefully prior to returning the required forms to implement your plan's loan program. STEP 2: Complete the Loan Guidelines Agreement. STEP 3: Determine whether any formal action is required by your legislative body and/or plan administrative committee to implement a loan program.If formal action is required,you may want to use the suggested resolution in this packet. STEP 4: Complete the following documents (ifapplicable) • 457(6)Plan Loan Administration Agreement—If you have multiple 457(b)plan providers,you must complete and return this document to ICMA RC. • Loan Amendment(401(a)/403(b)Plans Only)—If you are amending your existing 401(a)/403(b) plan to add loan provisions,you must complete and return this document to ICMA-RC. STEP 5: Return copies of the following documents to ICMA RC(please be sure to submit all pages and retain the originals for your records): • Loan Guidelines Agreement • Loan Amendment to the 401(a) Plan Adoption Agreement(if applicable) • 457(b) Plan Loan Administration Agreement(if applicable) • Suggested Resolution(ifapplicable) EMAIL TO: OR MAIL TO: PlanAdoptionServices@icmarc.org ICMA RC ATTN:Workflow Management Team P.O.Box 96220 Washington, DC 20090-6220 STEP 6: Please allow 5-7 business days for ICMA-RC to establish your plan's loan program. Please retain original copies of any documents you return to ICMA-RC for your records. If you have any questions relating to the adoption process,please contact your Plan Sponsor Services team at 800-326-7272. 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(b)/401(0)/403(b)PLAN SPONSORS 2 Loan Guidelines Agreement Instructions The information in this packet is intended to assist you Section III: Loan Purpose with implementing a loan program within your ICMA RC 457(b),401(a),or 403(b)plan(s).The packet provides an Specify whether loans may be taken for(A)All Purposes or overview of the issues and complexities of establishing and (B) Other Purposes(You will be responsible for approval of maintaining a loan program under the most common types all loan requests.). of retirement plan arrangements.It is not intended to be all (A) All Purposes inclusive.Special situations and/or solutions not discussed (B) Other Purposes in this document will need to be reviewed on a case-by-case basis. Employers have the ability to make their plan's loan program more restrictive under both of the above options. The instructions contain information that will help you understand the decisions you will need to make when you establish your loan program and help you complete the Section IV:Application Process Loan Guidelines Agreement. Please carefully review the No action is required in this section.The application information in this section and complete all applicable process available to participants will vary depending on the sections of the Loan Guidelines Agreement. option you select in Section III(Loan Purpose). Here are a few of the elections that you will need to make: • Will loans be available for all purposes or only in other Section V: Maximum Number of Loans purposes designated by you,The Employer? Specify whether participants may have only one(1)or up • How many loans will participants be allowed to have to five(5)loans outstanding at one time.The option you outstanding at one time? (up to five) choose in this section will have a significant impact on the • How long will participants have to repay a loan used to number of loans made from your plan.Regardless of your purchase a new primary residence?(up to 30 years) election,a participant may receive a maximum of one(1) • How will participants repay their loans? (payroll loan per calendar year. deduction,ACH payments from their bank accounts, Note:If you select Payroll Deduction as a repayment option or both) for your participants in Section VIII,each loan repayment In order to offer loans within your retirement plan,the for each pay period must be accounted for separately.As such, Internal Revenue Code requires that you establish written repayments of multiple loans are a much larger burden on your payroll system (and personnel)than a repayment of a guidelines that govern the Plan's loan program.You may elect to use the Loan Guidelines Agreement to serve this single loan. purpose for your Plan. If you have any questions relating to the process of Section VI: Loan Amount implementing a loan program,please contact your Plan No action is required in this section.The Maximum Loan Sponsor Services team at 800-326-7272. Amount Worksheet includes instructions you can use to calculate the maximum loan amount for a participant. Section I: Employer Plan Information The loan modeling option on ICMA RC's Account Access website can also be used to calculate a participant's Enter the name of your employer plan.Also specify the maximum loan amount. plan type and your ICMA-RC plan number. Section II: Eligibility& Loan Source Section VII: Length of Loan Loans must be repaid in substantially equal installments of Loans are available to all active employees,except those principal and interest over a period that does not exceed five with an existing loan in default. (5)years.However,if the participant will be using the loan Loan Source—Use this section to specify the sources that to purchase a principal residence,the five(5)year time limit will be available for participant loans. may not apply.In this section of the form,you specify the maximum repayment period for principal residence loans, with 30 years being the maximum term. 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(6V401(003(bl PLAN SPONSORS I 3 In determining the maximum repayment period for ADDITIONAL LOAN REPAYMENTS AND EARLY PAY-OFF residential loans,you should be mindful that the loan term A participant may pay off all of the principal and interest may extend beyond the period the participant is employed early without penalty or additional fee.If a loan is paid by you.If you allow employees to continue to pay their in full prior to the end of the term of the loan,no further loans after they separate from service(see the Acceleration interest will accrue.Please note that no payment date section),repayments would continue by the participant, may be"skipped"even if the employee has made a large through you,for the entire term of the loan(e.g.,30 years). payment or submitted multiple payments. Every payroll period,the participant(former employee) will be required to give you a check for the periodic loan repayment amount.You then include this amount with Section IX: Loan Interest Rate your next contribution submittal to ICMA RC.Loan No action is required in this section.It simply describes the repayments may not be made directly to ICMA-RC by the interest rate that will be used for participant loans. participant, unless you choose ACH debit as a repayment option in Section VIII. Section X: Security/Collateral Section VIII: Loan Repayment Process No action is required in this section.It simply describes the Specify the repayment method(s)and repayment frequency amount that will be used as collateral for participant loans. your plan will use. Repayment Method—You can allow repayments to be Section XI:Acceleration made via payroll deduction and/or ACH payments from a Specify whether participants who have separated from participant's bank account. service will be able to continue loan repayments until they (1) Payroll Deduction—With this option,you will have withdrawn their entire account balance from the plan, include the loan repayment detail when you remit or if outstanding loans will be due and payable at the time contribution detail to ICMA-RC via the EZLink participants separate from service. website. You should consider the options in this section carefully, Initiating Payroll Deduction since your election will impact when outstanding loans become taxable to participants.If a participant does not Payroll deduction should begin within two payroll repay the outstanding loan amount at the time it is due,the cycles following the date the loan is processed by ICMA-RC.Employees using this method must notify loan is"foreclosed,"and the outstanding loan amount must the Employer immediately so that repayments will be reported by ICMA-RC as a taxable distribution in the begin as soon as practicable,on a date determined by year of the foreclosure. the Employer's payroll cycle.Failure to begin payroll Given the burdens associated with collecting loan deduction in a timely manner could lead to the repayments from former employees,you may not wish to employee's loan entering delinquency status. maintain a potentially long term"relationship"with former (2) ACH—With this option,participants authorize employees (especially in the case of residential loans). ICMA RC to debit loan repayments directly from the participant's bank account via Automated Clearing Section XII: Reamortixation House(ACH).This feature frees you of the burden No action is required in this section.It simply provides of establishing and monitoring loan repayments via information related to the reamortization of participant payroll deduction.The ACH repayment options are bi- weekly and monthly. loans. Section XIII: Refinance No action is required in this section.It simply provides information related to the refinancing of participant loans. 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(bl/4014003lb)PLAN SPONSORS I 4 Section XIV: Reduction of Loan associated with their retirement plan,regardless of the provisions governing the loan program. No action is required in this section.It simply describes how outstanding loans will be handled in the event of a CONSEQUENCES OF DEEMED DISTRIBUTED LOANS(PARTICIPANTS) participant's death. The principal balance,in addition to any accrued interest,is reported as a distribution to the IRS.However,the taxable Section XV: Deemed Distributions distribution is not the only event in conjunction with a No action is required in this section.However you should deemed distribution.The following negative consequences familiarize yourself with this information and note that occur as a result of deemed distribution. loan repayments must be made in accordance with the plan • The deemed distribution is a taxable event.However,it document,plan loan guidelines,and as reflected in the is not an actual distribution and therefore remains an promissory note signed by the participant.Failure to make asset of the participant's account.The outstanding loan loan repayments according to the loan terms will result in balance and accrued interest continue to be reported on the outstanding loan balance being deemed distributed and the participant's account statements. taxable to the participant. • Repayment of a deemed distribution will not change or TIMING reverse the taxable event. • The loan continues to be considered outstanding until A loan will be deemed distributed when a scheduled it is repaid or"offset" using the participant's account payment is still unpaid at the end of the calendar quarter balance.An offset can occur only if the participant following the calendar quarter in which the payment was is eligible to receive a distribution from the plan as due.For example,if a participant does not make a loan outlined in your plan document. payment that was scheduled to be made on February 1,the maximum cure period for the repayment is June 30.If the • Participants are required to repay any outstanding total amount of all delinquent payments is not received by deemed distributed loan before they can become the end of the cure period,the Ioan is deemed distributed. eligible for a new loan.The deemed distributed loan and any interest accrued since the date it became a CONSEQUENCES OF DEEMED DISTRIBUTED LOANS(EMPLOYERS) taxable event is taken into account when determining the maximum amount available for a new loan. Employers who do not ensure proper loan repayment • A participant who has had a prior deemed distribution practices in their retirement loan programs risk not only having individual participant loans being deemed must make repayments to a new loan through payroll distributed,but also potentially jeopardize the tax- deduction,or provide proof of adequate security. favored status of the entire plan.In the extreme,plans with mismanaged loan programs—a high occurrence of Section XVI: Fees deemed distributed loans,and/or program participants in default,for example—may be disqualified(in the case of No action is required in this section.It simply provides that 401(a)/403(b)plans)or classified as ineligible(for 457(b) fees may be charged for various services associated with the plans)by the IRS.Disqualification results in the loss of tax- application for and issuance of loans.Participants should deferred status for all contributions and a possible increase review the Annual Service and Fee Disclosure notice(s)for your plan for more information on the applicable fees. in the taxable income for participating employees. It is a plan sponsor's fiduciary obligation to properly manage the retirement plan and its benefits.Mismanagement of Section XVII: Signatures a loan program may be considered failure to meet this Please have an authorized plan representative sign and date fiduciary obligation and may expose a plan sponsor to this section of the agreement. litigation,in addition to being in violation of applicable laws and regulations. Employers,as plan sponsors and fiduciaries,have an SPECIAL CIRCUMSTANCES obligation to comply with plan document and loan guideline requirements applicable to participant loans.In this regard,loan payments must be made in accordance Emergency Withdrawals (457(b) Plans Only) with the plan document,plan loan guidelines,and as reflected in the promissory note signed by the participant. 457(b)Plans:Loans must be coordinated with unforeseeable Employers retain this obligation if there is a loan program emergency withdrawals.The emergency withdrawal 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(b)/401(a)/403(b)PLAN SPONSORS I 5 regulations under Section 457(b) of the Code require that itself,the maximum amount that a participant may borrow an emergency withdrawal be a resource of the"last resort." at any point in time.Since only you,the employer,can If the participant is able to take a loan or refinance a determine the current outstanding loan balance and the current loan from your ICMA RC 457(b) plan or any other highest outstanding loan balance in the past 12 months plan you sponsor,the participant has resources available from all loans from any retirement plans,you will have to to meet,or partially meet,the financial need.Therefore, calculate the maximum amount that may be borrowed. a participant will be required to take or refinance a loan This will involve obtaining all loan amounts currently before taking an emergency withdrawal. outstanding and repaid in the last 12 months.Please refer Many emergency withdrawals are not approved because the to the Maximum Loan Amount Worksheet for instructions financial need,while serious,may not meet the conditions you can use to calculate the maximum loan amount for a itemized in the 457(b) regulations.The ability to take a participant. loan allows participants to have access to money that is not Participants are asked to input all outstanding loan balances otherwise available.And the repayment process for loans in their online worksheet so that the program can properly ensures that participants replenish their accounts,thereby calculate the maximum amount.Participants are on the preserving their retirement savings. "honor system"when they enter other loan amounts; ICMA-RC is unable to verify any loan amounts associated with plans administered by other providers.However,if Qualified Joint and Surviv®r Annuity there are any outstanding loans in other plans administered (Applies to Some 401(a)/403(b) Plans Only) by ICMA-RC,our online program will take them into If your plan uses the Qualified Joint and Survivor Annuity account. as the default form of payment,married participants must obtain spousal consent prior to obtaining a loan.The 2.SINGLE RETIREMENT PLAN/MULTIPLE PROVIDERS employee's spouse must consent,in writing,to the loan and If you have adopted a single retirement plan with one the consent must be witnessed by a plan representative or master plan document under which ICMA-RC and notary public.Such consent must be received in writing by your other administrator(s) must operate, then you may ICMA-RC no more than ninety(90) days before the loan ultimately have to self-administer your loan program,unless request is submitted through Account Access.In the case of you require: the Direct Loan Application,spousal consent should be sent • that the maximum that may be borrowed from any along with the application. provider is 50 percent of the balance with that provider Please be advised, that some states recognize a status,such as a and civil union or registered domestic partnership, to carry the same . that the loan must be repaid only to the provider from rights and obligations as marriage under state law. which the loan was made. Multiple Plans/Providers 3.MULTIPLE TYPES OF RETIREMENT PLANS/MULTIPLE PROVIDERS If you have more than one retirement plan which offers If you make loans available to your employees from all loans,including"co-administered"or"co-provider"plans, of your retirement plans(e.g.Section 457(b)deferred ICMA-RC will administer your loan program in your compensation plan,403(b)and Section 401(a)qualified plan(s)with ICMA-RC,but you will have to perform some plan),no administrator will be able to calculate,by itself, loan verification activities.You will need to perform these the maximum amount that a participant may borrow at any activities if loans are available to your employees from point in time.This is because the Code sets a maximum on several like retirement plans,such as two separate qualified the aggregate of all loans from all 401(a),403(b),and 457(b) plans,or if you have different types of retirement plans(e.g. plans in which the participant participates.Since only you, Section 457(b) deferred compensation,403(b) and section the employer,can determine the current outstanding loan 401(a) qualified plan).The degree of your involvement will balance and the highest outstanding loan balance in the depend on your situation. past 12 months from all loans from any 401(a),403(b), or 457(b)plans,you will have to calculate the maximum 1.MULTIPLE PLANS amount that may be borrowed.This will involve obtaining all loan amounts currently outstanding and repaid in the The Code sets a maximum on the aggregate of all last 12 months.Please refer to the Maximum Loan Amount loans from all retirement plans in which the employee Worksheet for instructions you can use to calculate the participates. If you offer retirement plans through multiple maximum loan amount for a participant. plan providers,no provider will be able to calculate,by 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(b)/401(0)/403(b)PLAN SPONSORS I 6 is RC LOAN GUIDELINES AGREEMENT 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): City of Rosemead Plan Type: ❑457(b)Deferred Compensation Plan ❑401(a)Money Purchase Plan 0401(a)Profit-Sharing Plan ❑403(b)Retirement Plan ICMA-RC Plan Number(s): 106564 IL ELIGIBILITY&LOAN SOURCE Loans are available to all active employees,except those with an existing loan in default. 401(a)/403(b)Plans—If your 401(a)/403(b)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) ❑X Employer Contribution Account(vested balances only) ❑Participant Contribution Accounts(pre-and post-tax,if applicable,including Employee Mandatory,Employee Voluntary,Employer Rollover, and Portable Benefits Accounts,but excluding the Deductible Employee Contribution/Qualified Voluntary Employee Contribution Account) Roth Assets(ifapplicable)—If your 457(b),403(b),or 401(a)(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) ❑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 requirementsfor a qualified(tax-free) distribution of Roth assets. This may result in participants paying taxes on assets 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. Other Purposes—With this option,loans shall only be granted for reasons that are defined and approved by the plan.Participants will be able to request new loans or refinance existing loans using the Online Loans option.Please define purposes below and attach additional pages if needed. FmcrcgAnry Pi irpnsps 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(b)/401(003(b)PLAN SPONSORS I 7 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 • Participants can request a new loan or to refinance an existing loan using the ICMA RC website at www.icmarc.org. • The participant agrees to the terms of the loan during the online loan request process. • ICMA RC sends the loan documents and the loan proceeds(via check or ACH)to the participant. (B)OTHER PURPOSES • Participants can request a new loan or to refinance an existing loan using the ICMA RC website at www.icmarc.org. • The participant agrees to the terms of the loan during the online loan request process. • The Employer must review and approve the loan via EZLink. • If approved,ICMARC sends the loan documents and the loan proceeds(via check or ACH)to the participant. 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 market close on a business day.If not,the loan amount will be redeemed on the next business day following submission.The loan proceeds for an all purpose loan is generally issued on the next business day following redemption,and will be sent to the participant based on their option during the loan application process. V. MAXIMUM NUMBER OF LOANS(SELECT ONE) Participants may receive one loan per time period defined in the plan document(e.g.,calender or plan year).Please specify whether participants may have only one(1)or up to five(5)loans outstanding at one time.Maximum number of loans is one(1)by default.If you want to allow a different amount,enter a value of 1 through 5 in the Other Section. ❑X One(1).Participants may have only one(1)outstanding loan at a time(default). ❑Other.Participants may have up to (enter 2,3,or 4)loans outstanding at one time. ❑Other 403(b)ONLY.Participants with outstanding legacy loans may have one outstanding loan other than the legacy loans. 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(b)(b)of the Code or qualified employer plans under Section 72(p)(4)of the Code (e.g.,401(a)/403(b)plans)shall not exceed the lesser off (1) $50,000,or (2) One-half of the value of the Participant's interest in all of his or her Accounts under this Plan. When calculating the maximum amount a participant is eligible to 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. 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(I4/401(e)/403(b)PLAN SPONSORS I 8 LOAN GUIDELINES AGREEMENT 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= 15 (Enter a 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 or ACH payments from a participant's bank account.Loan repayments must be made at least monthly(457(b))or quarterly(401(a)/403(b)). Repayment Method(Select One): 0 For 457(b)and 401(a)or(k)plans: ® ACH or ❑X Payroll deduction. 403(b)plans loan repayments can only be paid by ACH.* *ACH Payment Rejected Fee—yr:loan repayment scheduled to be paid via ACH debit is rejected due to insuficientfunds,invalid bank account information,or account closure,a fee will be charged to the participant's account. The fee is$20 for the first occurrence and$50for each subsequent occurrence. Repayment Frequency(Select One): For Payroll Deduction:Repayments through payroll deduction will be sent via check,wire or ACH debit by the Employer to ICMA- RC on the following cycle(Select One): ❑Weekly(52 per year) ❑X Bi-weekly(26 per year) ❑Semi-monthly(24 per year) ❑Monthly(12 per year) ❑Quarterly(4 per year)—Available to 401(a)only. For ACH(Select One): ❑X Monthly(12 per year) ❑Bi-weekly(26 per year) Next two payroll dates: / / and Initiating Repayments: ACH debits from the employee's designated bank account will begin approximately one month following the date the loan is processed by ICMA-RC. Payroll deduction should begin within two payroll cycles following the date the loan is processed by ICMA RC.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. 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(h)/401(0)/403(hl PLAN SPONSORS I 9 LOAN GUIDELINES AGREEMENT VIII. LOAN REPAYMENT PROCESS(mom) Investment of Loan Repayments MI 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 of the principal and interest early without penalty or additional fee.If a loan is paid in full prior to the end of the term of the loan,no further interest will accrue.Please note that no payment date may be"skipped"even if the employee has made a large payment or submitted multiple payments. 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 ICMA RC. Former Employees and Leave of Absence Former employees and employees on a Ieave 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. ICMARC 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 Money Cafe(prime rate)and Citi Mortgage(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. 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(b)/401(a)/403(b)PLAN SPONSORS I 10 LOAN GUIDELINES AGREEMENT XI. ACCELERATION (Sofa ONE) 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. ❑X 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. 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 VII]years from the date the loan was originally issued. Participants can use a loan reamortization 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 of calculating 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 may elect to refinance an outstanding loan for an additional amount,subject to the loan amount limitations outlined in Section VI,provided that the participant has not yet taken out a loan during the calendar year. Participants no longer employed are not eligible to refinance an existing loan. Note:Principal residence loans are not eligible for refinance. XIV. REDUCTION 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. 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(b)/401(0)/403(b)PLAN SPONSORS 11 LOAN GUIDELINES AGREEMENT 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 reported 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 with the loan guideline requirements applicable to participant loans,and to ensure against deemed distribution by monitoring loan repayments,regardless of the method of repayment,and by advising employees ifloans are in danger of being deemed distributed. The tax-qualified status or eligibility of the entire plan may be revoked in cases 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. 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__. Day lithe Month Manth Year EMPLOYER By: Title: Attest: 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(b)/401(a)/403(b)PLAN SPONSORS I 12 Maximum Loan Amount Worksheet The maximum amount a participant can borrow from his or her account is$50,000 or 50%of the account balance,whichever is less. However,the amount must be reduced by a participant's highest outstanding loan balance over the past 12 months(which,obviously, only impacts participants who have previously taken a loan from a 457(6),401(a)qualified,or 403(6)plan).The minimum amount a participant can borrow is$1,000. EXAMPLE 1 Michael has never taken a loan from his account before and his 457(b)plan account balance at the close of business yesterday was $84,000.To calculate the maximum loan amount he is eligible to receive,we need to determine if 50%of his account balance ($84,000 x 50%=$42,000)is greater than or less than$50,000.In this case,50%of his account balance is less than$50,000, so the maximum loan amount Michael is eligible to receive is$42,000(the lesser of the two amounts). EXAMPLE 2 Kathy has never taken a loan from her account before and her 401(a)/403(b)plan account balance at the dose of business yesterday was$240,000.In this case,50%of Kathy's balance($240,000 x 50%=$120,000)is greater than$50,000,so the maximum loan amount Kathy is eligible to receive is$50,000(the lesser of the two amounts). EXAMPLE 3 Pam took a$15,000 loan from her account eight months ago(in the previous calendar year)and her 457(b)plan account balance at the close of business yesterday was$130,000.In this case,50%of Pam's balance($130,000 x 50%=$65,000)is greater than $50,000,but that amount must also be reduced by her highest outstanding loan balance over the past 12 months,so the maximum loan amount Pam is eligible to receive is$35,000.($50,000—$15,000=$35,000) MAXIMUM LOAN AMOUNT WORKSHEET Example (using numbers from Worksheet Template Example 3 above) 1) Enter 50%of the participant's total plan account balance. 1) $ 1) $65,000 2) Enter the answer to#1 or$50,000,whichever is less. 2) $ 2) $50,000 3) Enter the participant's highest outstanding loan balance over the past 12 months 3) —$ 3) —$15,000 (from all of your plans combined),if applicable. 4) Subtract#3 from#2 and you have the maximum amount the participant is 4) $ 4) $35,000 eligible to receive as a new loan. (maximum loan amount) 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(b)/401(a)/403(b)PLAN SPONSORS I 13 SUGGESTED RESOLUTION FOR A LEGISLATIVE BODY ICMARC RELATING TO AMENDING A RETIREMENT PLAN TO PERMIT LOANS 401(a)Money Purchase Plan# 10 401(a)Profit-Sharing Plan# 10---- 457(b)Deferred Compensation Plan#30 403(b)Retirement Plan# 40 Name of Employer: State: Resolution of the above named Employer("Employer") WHEREAS,the Employer has employees rendering valuable services;and WHEREAS,the Employer has established a retirement plan(the"Plan")for such employees which serves the interest of the Employer by enabling it to provide reasonable retirement security for its employees,by providing increased flexibility in its personnel management system,and 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 Plan will permit loans. I, ,Clerk of the(City,County,etc.)of ,do hereby certify that the foregoing resolution,proposed by(Council Member,Trustee,etc.) ,was duly passed and adopted in the(Council,Board,etc.)of the(City,County,etc.)of at a regular meeting thereof assembled this day of ,20__,by the following vote: AYES: NAYS: ABSENT: CLERK OF THE(CITY,COUNTY,ETC.) Email or mail copies of all completed documents to ICMA-RC. Email to: OR Mail to: PlanAdoptionServices@icmarc.org ICMA RC ATTN:Workflow Management Team P.O.Box 96220 Washington,DC 20090-6220 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(b)/401(0)/403(b)PLAN SPONSORS I 14 457(b) PLAN LOAN ADMINISTRATION icivt RC' AGREEMENT This Agreement is not required if you have 1)only one 457(b)plan provider or 2)more than one plan provider each with its own plan document and provisions unique to each provider.The Agreement only applies if you have adopted a single 457(b)plan document under which ICMA-RC and one or more other provider(s)must operate.Please refer to the Multiple Plans/Providers section of the Loan Guidelines.Agreement Instructions for more details. This Agreement shall serve as an Addendum to the Loan Guidelines established by the Employer identified below and as an Addendum to the Administrative Services Agreement(ASA)made by and between the ICMA Retirement Corporation(ICMA-RC)and the Employer. The Employer currently sponsors a section 457(b)deferred compensation plan administered by two or more providers(co-provider plan). In order to ensure the efficient administration of the loan program established by the Employer,the Employer hereby agrees and declares that (1) For purposes of issuing loans from the plan,that portion of the plan's assets administered by ICMA-RC will be treated as though it were a separate and distinct plan. (2)The Employer shall calculate the amount a participant may borrow from the ICMA-RC administered portion of the plan.No loan amount may exceed the lesser of(a)the maximum loan amount specified in Internal Revenue Code section 72(p)(2)(A)or(b)50% of the participant's ICMA-RC-administered account balance. (3)All loan repayments must be made to the participant's ICMA-RC-administered account for the life of the loan. AGREED as of the day of ,20 Name of Employer: State: Employer Plan Number: 30 Authorized Official(Print Name): Signature of Authorized Official: Email or mail copies of all completed documents to ICMA-RC. Email to: OR Mail to: PlanAdoptionServices@icmarc.org ICMA-RC ATTN:Workflow Management Team P.O. Box 96220 Washington,DC 20090-6220 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 45I(b)/401(a)/403(b)PLAN SPONSORS I 15 rmARC LOAN AMENDMENT (401(a) PLANS ONLY) ICMA RC GOVERNMENTAL 401(a) PLAN&TRUST AMENDMENT TO ADD LOANS I. Name of Employer. State: II. ICMA RC Plan#10 III. Loans are permitted under the plan,as provided in Article XIII of the Adoption Agreement and in the executed Loan Guidelines Agreement. In Witness Whereof,the Employer hereby causes this Agreement to be executed on this day of ,20__. EMPLOYER By: Title: Attest: Email or mail copies of all completed documents to ICMA RC. Email to: OR Mail to: PlanAdoptionServices@icmarc.org ICMA-RC ATTN:Workflow Management Team P.O.Box 96220 Washington,DC 20090-6220 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(001(0)/403(b)PLAN SPONSORS I 16 icm//4A ARC LOAN AMENDMENT (403(b) PLANS ONLY) NATIONAL BENEFITS SERVICES NON-ERISA 403(B)VOLUME SUBMITTER PLAN 403(b) AMENDMENT TO ADD LOANS I. Name of Employer. State: IL ICMA RC Plan#40 III. Loans are permitted under the plan,as provided in Article VII of the NBS Adoption Agreement and in the executed ICMA RC Loan Guidelines Agreement. In Witness Whereof,the Employer hereby causes this Agreement to be executed on this day of ,20__. EMPLOYER By: Title: Attest•. Email or mail copies of all completed documents to ICMA RC. Email to: OR Mail to: PlanAdoptionServices@icmarc.org ICMA RC ATTN:Workflow Management Team P.O.Box 96220 Washington,DC 20090-6220 43096-0220-489 LOAN IMPLEMENTATION PACKAGE FOR 457(b)/401(G)/403(b)PLAN SPONSORS I 17