City of New York Deferred Compensation Plan
401(k) Plan Loan Provisions
The "Plan" refers to the New York City Deferred Compensation Plan.
Participant Eligibility – Only Plan participants who are on active payroll status are eligible to receive a loan.
Cost – A loan origination fee in the amount of $50.00 shall be deducted from the loan amount approved and a quarterly maintenance fee of $8.75 shall be deducted from the participant’s account for the term of the loan. Each approved loan is subject to a separate origination and maintenance fee.
Frequency and Availability – The participant may be approved for only one loan in any 12-month period and may have no more than two loans outstanding at anytime. Loans shall be denied to individuals who are currently delinquent on a loan or have not completed repayment on a previously defaulted loan, subject to the terms of the Plan and the determination of the Plan Administrator.
Amount of Loan – The minimum loan amount a participant can request is $2,500.00. The maximum loan amount a participant may obtain, in accordance with Section 72(p)(2) of the Internal Revenue Code (IRC), is the lesser of (“Maximum Loan Amount”):
One-half of the participant’s total account value in the 401(k) Plan; or
$50,000.00; reduced by the highest outstanding balance of loans from all qualified employer plans of the same employer (such as pension loans, 403(b) and other Deferred Compensation Plan loans) during the 12 month period ending on the day before the date on which such loan is going to be made.
For purposes of the above limitations, all loans from qualified employer plans of the same employer described in Sections 414(d), 414(f), and 414(h) of the IRC are combined. The participant acknowledges and understands that if he or she applies and receives loan proceeds from another qualified employer plan of the same employer during the same time period the participant is applying for a loan from the Plan then this could result in an adverse tax consequence and loan default.
TAX CONSEQUENCES: The participant represents that he or she is aware of the Maximum Loan Amount and that the receipt of a loan from the Plan will not cause the participant to exceed the Maximum Loan Amount. The participant further acknowledges that any adverse tax consequences that result from the participant’s receipt of a loan that exceeds the Maximum Loan Amount are solely the responsibility of the participant. The Participant has independently weighed that risk and has determined that requesting a loan is in his or her best interests. The Plan Administrator shall not be liable for any adverse tax consequences. The participant is strongly advised to address any questions regarding the tax consequences of loans or loan limits to a qualified, independent tax advisor before submitting an application for a loan.
Interest Rate Determination – For loans originating in any given month, interest due will be the prime rate published in The Wall Street Journal on the first business day of each month, plus 1%, and such rate is fixed for the life of the loan. Determined rates of interest shall be in accordance with Section 5-501 of the New York State General Obligations Law.
Loan Cancellation – A participant may cancel a loan if the Plan Administrator receives a written request no later than five (5) days from the date the loan application was submitted.
Repayment – Payments of principal and interest on the loan will be made in equal installments. The first repayment will be due approximately thirty (30) days from the date of loan. All loan repayments will be made through payroll deductions. If a participant transfers to a different agency within the City of New York, it is the participant’s responsibility to inform the Plan, via a Loan Change Form, to continue proper loan repayment. Failure to inform the Plan of the agency change could result in repayments not being deducted and loan default.
Principal repayments and interest payments shall be reinvested in the participant’s account in accordance with the participant’s investment election in effect at the time payments are received by the Plan. If the participant is not currently contributing to his/her Plan account, the most current investment election on file will be used.
Loan Prepayment Prepayments will only be accepted for the entire outstanding balance of the loan, including any accrued interest. The Plan will not accept any partial payments. All prepayments must be made by certified check, bank check or postal money order (personal checks will not be accepted). If you intend to prepay your loan, please contact the Plan Administrator to determine your payoff amount.
Leave of Absence – Notwithstanding the above, participants who take a leave of absence without pay for a period of greater than one month but not exceeding one year may, through the submission of a Loan Change Form, request that his or her loan repayments be suspended during the leave of absence. Interest will continue to accrue during the suspension period. The loan repayment period may not be extended but the remaining loan balance may be re-amortized at the end of the participant’s loan suspension period. Upon completion of the leave of absence, the participant must submit a Loan Change Form to resume loan payroll deductions. If the leave of absence without pay is for a period of one-year or greater, the participant must continue to make loan payments, in accordance with the original loan repayment schedule, by submitting them directly to the Plan Administrator. Upon submission of the Loan Change form, the Plan Administrator shall send a request for loan payment directly to the participant’s address on file with the Plan. Participants can make loan payments to the Plan via personal check, bank check or money order. Failure to submit a Loan Change Form may result in loan default.
If a Participant takes a leave of absence from the City of New York because of service in the military, and does not receive a distribution of his/her account, such time period shall not be taken into account as part of the loan period even if the length of military service is greater that the original term of the loan. Upon completion of military service, the loan shall be re-amortized and repaid over the original term of the loan. Notwithstanding the above, during the military service period the rate of interest shall not be greater than 6% compounded annually. Please submit a Loan Change Form prior to commencement of military leave and upon return.
Default – A participant’s loan shall be delinquent if any loan payment is not made on the date it is due and the Plan Administrator does not receive the payment by the last day of the calendar quarter in which it was due.
If the loan is delinquent, the Plan Administrator will send the participant a Loan Late Letter (the "Late Letter") notifying him or her of the delinquency and the ability to cure the delinquency and avoid default. To cure the delinquency, the participant must submit the amount due, via personal check, bank check or money order, directly, to the Plan Administrator by the last day of the quarter in which the Late Letter was sent ("Cure Period").
If the Plan Administrator has not received the delinquent loan payment(s) prior to the expiration of the Cure Period, the loan is defaulted and the participant shall receive a Loan Defaulted Letter (the "Default Letter"). The Default Letter is a confirmation to the participant that the Plan Administrator did not receive the past due loan payment(s) prior to the expiration of the Cure Period and therefore the following has taken place:
The entire loan, including any accrued interest, is immediately due and payable.
The entire amount outstanding (remaining principal and accrued interest) will be reported to the Internal Revenue Service, on Form 1099-R, as a deemed distribution as required by law.
The loan will continue to exist and interest on the loan will continue to accrue until the loan is fully repaid or the participant experiences a “distributable event.” Interest on the defaulted loan will be reported annually to the Internal Revenue Service on Form 1099-R.
A distributable event, as defined by the Internal Revenue Service, is severance from City service, attainment of age 59½, total disability or death. Please notify the Plan Administrator if you experience or have experienced a distributable event by submitting a participant Distribution Form.
Any attempts to recover on a delinquent loan or a loan in default shall be in accordance with applicable federal and state bankruptcy laws.
Waiver – Any extension of the time for repayment (or any modification of the repayment schedule) granted by the Plan Administrator will not release the participant from his or her liability, or any of his or her obligations hereunder. Any forbearance by the Plan Administrator in exercising any right or remedy shall not be considered a waiver of any of its rights hereunder, or preclude it from exercising any of its rights or remedies hereunder at a later time.
Domestic Relations Orders – A loan application will not be processed if the Plan Administrator believes that a claim including, without limitation, a purported Qualified Domestic Relations Order, against all or part of any Plan Benefit is likely to be asserted.
Severance From City Service – Upon severance from City service, loans become immediately due and payable. The loan may be repaid by certified check, bank check or postal money order (personal checks will not be accepted) or the participant can authorize the Plan Administrator to classify the loan as a deemed distribution by completing the appropriate section of the Distribution Form.
Distributions -
401(k) Plan Partial Distributions for Participants Age 59½ and Over - The outstanding loan amount will reduce the amount available for partial distributions. An amount equal to the current outstanding loan balance (principal and interest) must remain in the participant’s account until the loan is fully repaid. This restriction does not apply to distributions due to reasons of approved hardship.
Full Distributions – A request for a full distribution will not be honored unless the participant is severing from City service (see M above).
In the event of a participant’s death, all outstanding loan principal and accrued interest shall be treated as a distribution on the date of death. The loan cannot be transferred to, or assumed by, the participant’s beneficiary. If the loan was not repaid prior to the date of death, any distribution will be made net of any outstanding loan obligation. In addition, the amount of the outstanding loan will be reported as a distribution to the participant’s estate.
All outstanding loan balances must be paid in full, including any accrued interest, or treated as a deemed distribution before or at the same time a participant can request a periodic payment option setup.
Source and application of funds - Loan disbursements and fees will be made on a prorated basis from the Participant’s current investment funds.
ACCELERATION: THE PLAN SHALL HAVE THE RIGHT TO ACCELERATE ANY AND ALL AMOUNT(S) DUE HEREUNDER IN THE EVENT OF ANY BREACH OF ANY COVENANT OR PROMISE MADE BY THE PARTICIPANT UNDER THE TERMS OF THESE LOAN PROVISIONS.