Taking Out a Loan

How do I take out a loan from my retirement plan account?

Your employer-sponsored retirement plan may allow you to borrow from your account. If your plan allows Participant loans, the available loan amounts are governed by Internal Revenue Code and Department of Labor regulations as well as by the Plan Document.

The basics of the Envoy Choice loan program for your plan are described below:

Maximum Loan Amount (1): Lesser of $50,000 or 50% of vested account balance
Minimum Loan Amount: $1,000
Interest Rate (paid to the Participant’s Account): Prime plus 1%
Maximum Number of Loans Outstanding (2): 1
Personal Loan Maximum Term: 5 years
Residential Loan Maximum Term (3): 30 years
Minimum Term: 1 year
Spousal Consent: Required if married
Loan Repayment (4): Payroll deduction only
Loan Payoff (5): Any time
Loan Default (6): After 90 day non-repayment period
Loan Initiation Expense: One time and deducted from your account ($100 one-time)
Loan Maintenance Expense: Monthly and deducted from your account ($5 monthly)

1 The maximum amount that the plan can permit as a loan is 50% of your vested account balance or $50,000, whichever is less. For example, if you have a vested account balance of $40,000, the maximum amount you can borrow from your account is $20,000.

2 The thirty year amortization period available for a residential loan applies to the purchase of a primary residence only. It does not apply to other types of home purchases. You will need to demonstrate that the loan proceeds are being used for the purchase of a primary residence. Many Plan Administrators ask to see a copy of the Purchase Agreement (or other like document) for the primary residence.

3 You may only have one outstanding loan at a time. If you have an outstanding loan and wish to secure a new loan, the existing loan must be paid off prior to initiating the new loan. In determining the maximum amount that can be borrowed for the new loan, the $50,000 limit described above is reduced by the difference between the highest outstanding balance of your prior loan during the 12-month period ending on the day before the new loan and the outstanding balance of your loans from the plan on the date of the new loan.

The Loan Modeling Tool available on the Envoy Web Portal will calculate the “available loan amount” for you. If there was an outstanding loan amount in the previous 12-month period, the outstanding loan value will be factored into the newly calculated available loan amount.

4 Loan repayments are withheld from your payroll via salary reduction. Loan repayments are “after-tax” deductions. The loan repayments are remitted to the plan along with the periodic contribution submissions.

5 If you have a loan and terminate employment, the outstanding loan will need to be paid in full within 90 days. Otherwise, the loan will default. This “deemed distribution” is a taxable event to you. You will receive a 1099-R for the outstanding loan balance in January of the year following the year in which the loan defaulted.

6 If you have an outstanding loan and choose to stop your payroll withholding loan repayments, your outstanding loan will also go into default at the end of a 90-day non-repayment period. This “deemed distribution” is a taxable event to you. You will receive a 1099-R for the outstanding loan balance in January of the year following the year in which the loan defaulted.

Detailed Instructions for Requesting a Loan

The process for requesting a loan is described below, with the responsible party identified for each step.

Step #1 – Participant

1. Go to www.EnvoyFinancial.com and click Account Login
2. Enter your Username, password, and select Account Holder from the drop-down menu
3. On the top menu, click Take Money Out and select Loans and Withdrawals from the drop-down menu

4. Select loan type: Personal Loan or Residential Loan

5. Enter the Loan Amount to borrow, repayment months, and follow the instructions to complete request
6. Enter the number of payments for the loan. For example, if you are paid on a bi-weekly basis and wish to request a 5-year loan, the number of payments would be 130 (26 x 5 = 130)

Step #2 – Envoy

Envoy will send an email message to you and your Plan Sponsor including:

Instructions
Promissory Note and Security Agreement
Amortization Schedule

Step #3 – Participant

Complete and sign the Promissory Note and Security Agreement. If you are married, your spouse must also sign the form. The completed Promissory Note and Security Agreement must be returned to your employer, the Plan Sponsor.

Step #4 – Envoy

Envoy will deduct a loan initiation expense from your account.
Envoy will liquidate the loan principal amount you requested.
Envoy will direct the payment to your employer, the Plan Sponsor.

Step #5 – Plan Sponsor

Secures the signed Promissory Note and Security Agreement from you
Verifies that the Promissory Note and Security Agreement is properly signed by you and your spouse, if married.
Signs the Promissory Note as the Plan Administrator and retains a copy in your HR records.
Delivers the loan check from Matrix Trust (plan custodian) to you.
Sets up your loan repayments in accordance with the Loan Amortization Schedule in the payroll system.
Monitors amortization of the loan and discontinues loan payments upon completion of the payments.