Q. What do I need to know about Savings Plan loans?
A. The following is a summary of the basics of Savings Plan loan requirements:
- You must be an employee to request a loan.
- You generally may obtain two new loans in a given calendar year.
- Loans are funded from the assets of the Savings Plan, with your individual account serving as collateral.
- You may have up to three loans outstanding at a time.
- You may elect 12 - 60 months to repay each loan.
- Your minimum loan amount is $1,000. The maximum loan amount is subject to limitations.
- You may not initiate a new loan if you are delinquent on payments for an existing loan.
The minimum loan amount is $1,000. The maximum you may borrow is the lesser of these amounts:
- 50% of the market value of your vested Savings Plan Account balance, minus any existing loan amounts; or
- $50,000 reduced by your highest outstanding loan balance during the prior 12 months.
Frequency and number of loans
You are allowed up to three outstanding loans at one time, with no more than two new loans granted in a given calendar year.
Repaying your loan
You may elect a period of 12 to 60 months to repay your loan through payroll deductions. Your loan payments via payroll deduction will begin automatically as soon as possible following loan issuance. In the event that the payroll deduction is not taken for any reason or is insufficient to cover the repayment amount, you are still liable for such payment directly to the Trustee, by personal check or money order. Each installment includes payment of principal and interest on the loan. Interest is paid to the Savings Plan and is part of Common Assets earnings. If you wish, you may prepay all or part of your loan balance at any time. You may repay your loan in full with a cashier's or certified check. Any partial loan repayment can be made by check and may reduce the length of the repayment period, but it will not reduce the monthly installment amount. A loan payment must be received each month.
You may call the STS (Savings Telephone Service) or access the Web site to obtain loan payoff information.
When you borrow money from the Savings Plan, the assets in your Savings Plan Account serve as collateral for the loan. When you have an outstanding loan, withdrawals/distributions that will reduce the collateral value below the amount of your outstanding loan balance will be restricted.
If you default on a loan, the assets in your Savings Plan Account will be reduced by the outstanding loan balance at the time of default. This amount may be treated as a taxable distribution and may be subject to an additional 10% tax. See the Tax considerations section for more information. After your loan is declared in default, you will not be able to take out a new loan for five years from the date of default.
EFT is not available for the disbursement of loans. Loan disbursements are sent to you via paper check. When you endorse the check you are signing the loan promissory note.