Should Your Company Offer 401(k) Loans to Employee?
Monday, December 29th, 2008 Subscribe To Our Feed
Employee Benefit sponsors are not forced to offer 401k loan lending programs, however, many do.
With respect to plan administration, lending programs may be the most unpopular feature and the most intensive workload associated with handling 401(k)s. Differences can be discovered between the payment schedule created for the debt and the repayment schedule created by the company’s plan administrator and these may be left undetected till a retirement benefit plan is checked by the IRS. This can create a massive problem that may be problematic for a business to solve.
401(k) loans don’t represent a easy time for recipients either; possible they may face lots of mind boggling calculations when choosing to take a loan and frequently they do not understand exactly what it means to them financially, either over the long-term or at this moment, and how it will affect their financial future.
Plan on not giving loan benefits to benefit recipients unless it is politically fundamental in order to persuade the worker to participate in the 401(k) plan to begin with. Businesses that do feature 401k loans can impliment measures to reduce the administrative pain and the possibility of misuse by staff that such features may show up. Think about the following:
- Restrict the participants to one benefit loan at a time. Companyies that administered two loans concurrently discover that it is much more intensive to undertake while trying to keep straight which loan payment belongs to which loan file. They have discovered that there’s much more potential for abuse by staff.
- Make it mandatory that employees wait a defined period of time after repaying the loan – perhaps six months – until the employees are permitted to participate in another loan. Workers can use loans as a permanent support and it ends in throwing out the advantages of having a benefit.
- For workers in extreme cases the business can permit loans only for the same limited reasons that the IRS allows a hardship withdrawal from a 401(k) plan. When necessary to underwrite for ineligible medical bills or to stop a member losing their home. Also, even though staff are paying themselves interest, by mandating the interest rates above other sources it can serve as a deterrent and may prompt employees, workers, staff to request other options with their lenders.
Lastly, companies can always ensure education of their recipients concerning the possible repercussions of sourcing loans from their 401(k) plans. Maybe giving advice on the tax pitfalls and the repayment conditions as well as the future impact a loan can have on the capital of the ultimate benefits. Enterprises would do well to devote whatever it takes to explaining to their staff the financial prudence of keeping their retirement goals intact as they do in pursuading staff to belong.
Ensure your company provides the best advice. Call a qualified Benefit Consultant TODAY. Visit Benefit Consultants for more information.
About The Author:
BenefitConsultants.com is a site where you may find qualified benefit consultants to assist you in finding and pricing a plan for your company.
