CC - Item 4H - ICMA 401A Plan Loan Amendment and Adopt Resolution No. 2020-50 E M F
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PRIDE STAFF REPORT
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'NCORPORATED A9'
TO: MAYOR AND CITY COUNCIL
FROM: GLORIA MOLLEDA, CITY MANAGER, .
DATE: DECEMBER 8, 2020
SUBJECT: ICMA 401A PLAN LOAN AMENDMENT AND ADOPT RESOLUTION
NO. 2020-50
SUMMARY
The City currently contracts with ICMA to provide a 401A Profit-Sharing Plan for employees
hired before July 1, 2010. 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: Participant Contributions will be used as the
source for the loans.
Section III —Loan Purpose: Participants will be able to obtain loans for all purposes and
refinance existing loans.
Section V—Maximum Number of Loans: Participants may have only one (1) outstanding
loan at a time.
Section VII —Length of Loan: Loans must be repaid over a period that does not exceed
AGENDA ITEM 4.H
City Council Meeting
December 8,2020
Page 2 of 2
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 receives a
distribution of part of his/her account balance after separation from service.
STAFF RECOMMENDATION
Staff recommends that the City Council adopt the Resolution No. 2020-50, 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.
.epared by:
lizabeth PopsPIMP
Human Resour s Manager
Attachment A: Resolution No. 2020-50 amending the ICMA plan to permit loans
Attachment B: Loan Guidelines Agreement
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Attachment A
Resolution No. 2020-50
RESOLUTION: 2020-50
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 8th day of December 2020.
Sandra Armenta, Mayor
APPROVED AS TO FORM: ATTEST:
Rachel Richman, City Attorney Ericka Hernandez, City Clerk
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Attachment B
Loan Guidelines Agreement
Loan Implementation Package for
ICMATRC 457/401 Plan Sponsors
BUILDING PUBLIC SECTOR
RETIREMENT SECURITY
TABLE OF CONTENTS
Introduction and Summary Instructions 2
Basic information and instructions for implementing your plan's loon 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 Plan Loan Administration Agreement 15
457 Plans Only.If you have multiple 457 plan providers,you must complete and return
this document to 1C1v1A-RC
Loan Amendment(401 Plans Only) 16
401 Plans Only.If you are amending your existing plan to add a loon program,you
must complete and return this document to 1CMA-RC
Introduction and Summary Instructions for 457 and 401 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 or 401 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(if applicable)
• 457 Plan Loan Administration Agreement—If you have multiple 457 plan providers,you must complete
and return this document to ICMA-RC.
• Loan Amendment(401 Plans Only)—If you are amending your existing 401 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 Plan Adoption Agreement(if applicable)
• 457 Plan Loan Administration Agreement(if applicable)
• Suggested Resolution (if applicable)
FAX TO: OR MAIL TO:
Workflow Management Team ICMA-RC
202-682-6439 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 1014A-RC for your records.
If you have any questions relating to the adoption process,please contact your Plan Sponsor Services team at 500-326-7272.
LOAN IMIPLEJAE11IAIWON PACKAGE FOR 457/401 PLAN SPONSORS 2
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Loan Guidelines Agreement Instructions
The information in this packet is intended to assist you with Section III: Loan Purpose
implementing a loan program within your ICMA-RC 457
or 401 plan(s).The packer provides an overview of the issues Specify whether loans may be taken for(A) all purposes
and complexities of establishing and maintaining a loan or(B) only in the case of hardship.If you choose the"all
program under the most common types of retirement plan purposes option,more of your employees are likely to
arrangements.It is not intended to be all inclusive.Special request loans than if you select the"hardship only"option.
situations and/or solutions not discussed in this document (A) All Purposes
will need to be reviewed on a case-by-case basis. (B) Hardship Only
The instructions contain information that will help you 401 Plans:Under the Code,only employers can authorize
understand the decisions you will need to make when you a loan for hardship purposes. Generally,for loan purposes,
establish your loan program and help you complete the the IRS defines"hardship"situations for these purposes to
Loan Guidelines Agreement. Please carefully review the include,but not to be limited to: unreimbursed medical
information in this section and complete all applicable expenses,buying or rehabilitating the participant's
sections of the Loan Guidelines Agreement. principal residence,and paying for college education for the
Here are a few of the elections that you will need to make: participant or his/her qualified dependents.Car loan,car
• Will loans be available for all purposes or only in repairs,and the purchase or repair of a vacation or rental
hardship situations? property would not be included in the hardship definition.
• How many loans will participants be allowed CO have Employers have the ability to make their plan's loan
program more restrictive under both of the above options.
outstanding at one time? (up to five)
• How long will participants have to repay a loan used to
purchase a new primary residence? (up to 30 years) Section IV: Application Process
• How will participants repay their loans? (payroll No action is required in this section.The application
deduction,ACH payments from their bank accounts, process available to participants will vary depending on the
or both) option you select in Section III(Loan Purpose).
In order to offer loans within your retirement plan, the
Internal Revenue Code requires that you establish written Section V: Maximum Number of Loans
guidelines that govern the Plan's loan program.You may
elect to use the Loan Guidelines Agreement to serve this Specify whether participants may have only one(1) or up
purpose for your Plan. to five(5) loans outstanding at one time.The option you
choose in this section will have a significant impact on the
If you have any questions relating to the process of number of loans made from your plan. Regardless of your
implementing a loan program,please contact your Plan election,a participant may receive a maximum of one(1)
Sponsor Services team at 800-326-7272. loan per calendar year.
Note: If you select Payroll Deduction as a repayment option
Section I: Employer Plan Information for your participants in Section VIII,each loan rept}wzent
Enter the name of your employer plan.Also specify the for each pay period must be accounted for separately.As such,
repayments of multiple loans are a much larger burden on
plan type and your ICMA-RC plan number.
your payroll system(and personnel) than a repayment of a
single loan.
Section II: Eligibility & Loan Source
Loans are available to all active employees, except those Section VI: Loan Amount
with an existing loan in default.
No action is required in this section.The Maximum Loan
Loan Source—Use this section to specify the sources that Amount Worksheet includes instructions you can use to
will be available for participant loans. calculate the maximum loan amount for a participant.
The loan modeling option on ICMA-RC's Account
Access website can also be used to calculate a participant's
maximum loan amount.
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Section VII: Length of Loan ADDITIONAL LOAN REPAYMENTS AND EARLY PAY-OFF
Loans must be repaid in substantially equal installments of A participant may pay off all or a portion of the principal
principal and interest over a period that does not exceed five and interest early without penalty or additional fee.Extra
(5)years. However, if the participant will be using the loan payments are applied forward to both principal and interest
to purchase a principal residence, the five(5)year time limit as specified in the original repayment schedule,unless
may not apply.In this section of the form,you specify the the additional payment is for the full balance due.Please
maximum repayment period for principal residence loans, note that no payment date may be"skipped"even if the
with 30 years being the maximum term. employee has made a large payment or submitted multiple
In determining the maximum repayment period for payments.
residential loans,you should be mindful that the loan term
may extend beyond the period the participant is employed Section IX: Loan Interest Rate
by you.If you allow employees to continue to pay their
loans after they separate from service(see the Acceleration No action is required in this section. It simply describes the
section),repayments would continue by the participant,
interest rate that will be used for participant loans.
through you,for the entire term of the loan (e.g.,30 years).
Every payroll period,the participant(former employee) Section X: Security/Collateral
will be required to give you a check for the periodic loan
No action is required in this section. It simply describes the
repayment amount.You then include this amount with
your next contribution submittal to ICMA-RC.Loan amount that will be used as collateral for participant loans.
repayments may not be made directly to IC71/1r1-RC by the
participant, unless you choose ACH debit as a repayment Section XI:Acceleration
option in Section VIII.
Specify whether participants who have separated from
service will be able to continue loan repayments until they
Section VIII: Loan Repayment Process have withdrawn their entire account balance from the plan,
• Specify the repayment method(s) and repayment frequency or if outstanding loans will be due and payable at the time
your plan will use, participants separate from service.
You should consider the options in this section carefully,
Repayment Method—You can allow repayments to be since your election will impact when outstanding loans
made via payroll deduction and/or ACH payments from a become taxable to participants. If a participant does not
participant's bank account. repay the outstanding loan amount at the time it is due, the
(I) Payroll Deduction—With this option,you will loan is"foreclosed,"and the outstanding loan amount must
include the loan repayment derail when you remit be reported by ICMA-RC as a taxable distribution in the
contribution detail to ICMA-RC via the EZLink year of the foreclosure.
website. Given the burdens associated with collecting loan
Initiating Payroll Deduction repayments from former employees,you may not wish to
Payroll deduction should begin within two payroll maintain a potentially long term"relationship"with former
cycles following the employee's receipt of the loan. employees (especially in the case of residential loans).
Employees using this method must notify the Employer
immediately so that repayments will begin as soon as Section XII: Reamortization
practicable,on a date determined by the Employer's
payroll cycle.Failure to begin payroll deduction in No action is required in this section.It simply provides
a timely manner could lead to the employee's loan information related to the reamortization of participant •
entering delinquency status. loans.
(2) ACH—With this option,participants authorize
ICMA-RC to debit loan repayments directly from the Section XIII: Refinance
participant's bank account via Automated Clearing
House(ACH).This feature frees you of the burden No action is required in this section.It simply provides
information related to the refinancing of participant loans.
of establishing and monitoring loan repayments via
payroll deduction.
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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
Distributions
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 nor 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
reverse the taxable event.
TIMING
• 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 loan 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 No action is required in this section. It simply provides that
of 401 plans) or classified as ineligible(for 457 plans) by fees may be charged for various services associated with the
the IRS.Disqualification results in rhe loss of tax-deferred application for and issuance of loans.Participants should
status for all contributions and a possible increase in the review the Annual Service and Fee Disclosure notice(s) for
your plan for more information on the applicable fees.
taxable income for participating employees.
It is a plan sponsor's fiduciary obligation to properly manage
the retirement plan and irs benefits.Mismanagement of Section XVII: Signatures
a loan program may be considered failure to meet this Please have an authorized plan representative sign and dare
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 Plans Only)
with the plan document,plan loan guidelines,and as
reflected in the promissory note signed by the participant. 457 Plans:Loans must be coordinated with unforeseeable
Employers retain this obligation if there is a loan program emergency withdrawals.The emergency withdrawal
LOAN IMPLEMENTATION PACKAGE FOR 457/401 PLAN SPONSORS I 5
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regulations under Section 457 of the Code require that an itself,the maximum amount that a participant may borrow
emergency withdrawal be a resource of the"last resort."If at any point in time.Since only you,the employer,can
the participant is able to take a loan or refinance a current determine the current outstanding loan balance and the
loan from your ICMA-RC 457 plan or any other plan you highest outstanding loan balance in the past 12 months
sponsor,the participant has resources available to meet,or from all loans from any retirement plans,you will have to
partially meet, the financial need.Therefore,a participant calculate the maximum amount that may be borrowed.
will be required to take or refinance a loan before taking an This will involve obtaining all loan amounts currently
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 regulations.The ability to take a loan participant.
allows participants to have access to money that is not If you elect online loans,participants are asked to input
otherwise available.And the repayment process for loans all outstanding loan balances in their online worksheet
ensures that participants replenish their accounts,thereby so that the program can properly calculate the maximum
preserving their retirement savings. amount.Participants are on the"honor system"when they
enter other loan amounts;ICMA-RC is unable to verify
any loan amounts associated with plans administered
Qualified Join and Survivor Annuity by other providers. However,if there are any outstanding
(Applies to Some 401 Plans Only) . loans in other plans administered by ICMA-RC,our online
If your plan uses the Qualified Joint and Survivor Annuity program will take them into account.
as the default form of payment,married participants must
2.SINGLE RETIREMENT PLAN/MULTIPLE PROVIDERS
obtain spousal consent prior to obtaining a loan.The
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 e 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
•
loans,including"co-administered"or"co-provider" plans, all of your retirement plans(e.g.Section 457 deferred
ICA/IA-RC will administer your loan program in your compensation plan and Section 401 qualified plan),
plan(s)with IClvMA RC,but you will have to perform some no administrator will be able to calculate,by itself, the
loan verification activities.You will need to perform these 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
several like retirement plans,such as two separate qualified on the aggregate of all loans from all 401 and 457 plans
plans,or if you have different types of retirement plans in which the participant participates.Since only you,the
(e.g. Section 457 deferred compensation and section 401 employer,can determine the current outstanding loan
qualified plan).The degree of your involvement will depend balance and the highest outstanding loan balance in the ,
on your situation. past 12 months from all loans from any 401 or 457 plans,
you will have to calculate the maximum amount that may
1.MULTIPLE PLANS be borrowed.This will involve obtaining all loan amounts
currently outstanding and repaid in the last 12 months.
The Code sets a maximum on the aggregate of all Please refer to the Maximum Loan Amount Worksheet for
loans from all retirement plans in which the employee instructions you can use to calculate the maximum loan
participates.If you offer retirement plans through multiple •
amount for a participant.
plan providers, no provider will be able to calculate,by '
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i-/Ll
rmARC LOAN GUIDELINES AGREEMENT
BUILDING PUBLIC SECTOR,
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 [ mendment to Loan Program
I. EMPLOYER PLAN INFORMATION •
Name of Plan(Enter the complete Employer name,including state): C14.\11 Of k&eO1 d
Plan Type: ❑457 Deferred Compensation Plan ❑401(a)Money Purchase Plan 401 Profit-Sharing Plan
. ICMA-RC Plan Number_
____D4 5 ( if
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(vested balances only)
Participant Contribution Accounts(pre-and post-tax,ifapplicable,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 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)
❑A participant's Designated Roth Account will be available as a source for loans under the Plan.
Note:IfRoth assets are available as a source fir loans,a loan that is deemed distributed will not satisfy the requirementsfor a quaked(tax-free)
distribution ofRoth 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):
kll Purposes—With this option,participants can request a loan for any reason.Participants will be able to request new loans or
A
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 is 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.
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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 website at www.v.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 ICM:A-RC receipt of a loan request/
application(complete and in good order),Wit 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.
►4 One(1).Participants may have only one(1)outstanding loan ata 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 rime.
VI. LOAN AMOUNT-
Maximum:The maximum amount of all loans to a participant from the Plan and all other plans of the Employer char are either eligible
deferred compensation plans described in section 457(b)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 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.
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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 nor 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= g 0 (Enter a number ofyem:c,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.
❑ACH debit only.*
Employee may choose either payroll deduction or ACH debit.*
'ACH Payment Rejected Fee—Ifa loan repayment scheduled to be paid via ACH debit is rejected due to insufficient cient fluids,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$50 for 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)
ABi-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 rhe loan.Employees using this
method must notify the Employer immediately so that repayments will begin as soon as practicable,on a dare 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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LOAN GUIDELINES AGREEMENT
VIII. LOAN REPAYMENT PROCESS(coxn'um)
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 ofAbsence
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 raking loan repayments from the employee's paycheck—even if the
employee asks that repayments be stopped.Failure CO 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.
ICMA-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.moneycafe.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 (Rua 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.
Distribution of his/her entire account balance.Employees can continue making loan repayments until they have withdrawn their
e tire 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 VII]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:21 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 with one(1)outstanding loan may elect to refinance the outstanding loan for an additional amount,
subject to die loan amount limitations outlined in Section VI,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 eligiblefir refinance.
XIV. REDUCTION OF LOAN
If a participant dies prior CO 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 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 if loans are in danger of being
deemed distributed. The tax-qualified status or eligibility ofthe 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.
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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
Da.ofthr Mond, Mamb Year
EMPLOYER
By:
Title:
Attest:
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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 or qualified 401 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 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.
EXAMPLE 2
Kathy has never taken a loan from her account before and her 401 plan account balance at the close 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 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 LOARAMOUNT 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) 535,000
eligible to receive as a new loan. (maximum loan amount)
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SUGGESTED RESOLUTION FOR A LEGISLATIVE BODY
ICMARC RELATING TO AMENDING A RETIREMENT PLAN TO PERMIT LOANS
BUILDING PUBLIC SECTOR
RETIREMENT SECURITY
401 Money Purchase Plan# 10
401 Profit-Sharing Plan# 10
457 Deferred Compensation Plan# 30
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.)
Mail or fax copies of all completed documents to ICMA-RC.
Fax to: OR Mail to:
Workflow Management Team ICMA-RC
202-682-6439 ATTN:Workflow Management Team
P.O. Box 96220
Washington,DC 20090-6220
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icnn RC 457 PLAN LOAN ADMINISTRATION AGREEMENT
BUILDING PUBLIC SECTOR
RETIREMENT SECURITY
This Agreement is not required if you have 1)only one 457 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 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 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(PrintAVame):
Signature of Authorized Official:
Mail or fax copies of all completed documents to ICMA RC.
Fax to: OR Mail to:
Workflow Management Team ICMA-RC
202-682-6439 ATTN:Workflow Management Team
P.O. Box 96220
Washington,DC 20090-6220
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tcdficRC LOAN AMENDMENT (401 PLANS ONLY)
BUILDING PUBLIC SECTOR
RETIP,EMENT SECURITY
ICMA RC GOVERNMENTAL 401 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:
Mail or fax copies of all completed documents to ICMA RC.
Fax to: OR Mail to:
Workflow Management Team ICMA RC
202-682-6439 ATTN:Workflow Management Team
P.O.Box 96220
Washington,DC 20090-6220
PKT5010-006-24790-201506-489
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