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Adoption of CARES Act for Nationwide Fund Distribution

Author: Human Resources
Date: 4/28/2020 8:51:43 AM

Borrowing from Deferred Compensation account


SLO County’s Deferred Compensation Plan is a voluntary tax-efficient way for employees to save additional funds for retirement.  The Deferred Compensation (DC) Plan is administered by Nationwide Retirement Services.  The DC Plan includes a loan provision that some employees participating in the DC Plan may find useful.  Deferred Compensation loans can be used for any reason.  DC plan loans are essentially you, borrowing your own DC Plan funds instead of having those funds invested so you are paying yourself the interest on the loan instead.  DC Plan loans have an interest rate that varies and is currently at 4.25%, and have terms from 12-60 months. Our plan allows for one general purpose loan and one primary residence loan. Employees are eligible to borrow between $1,000 to $50,000. It also must be the lesser of:

  • 50% of your vested account balance, minus the current outstanding balance from all other loans, if any, or
  • $50,000 minus your highest outstanding balance of loans during the last 12 months, if any

Between March 27, 2020 and September 23, 2020, DC loans for COVID-19 related reasons may have higher limits of $100,000 or 100% of your account balance.  To qualify the DC Plan participant will self-certify that they, a spouse, or a dependent have COVID-19 and have experienced adverse financial consequences.  Or the participant may self-certify that they have suffered adverse financial consequences from COVID-19 related quarantine, layoff, furlough, reduced hours, or unable to work to provide childcare.  Please contact our Nationwide representatives to discuss loans.

 

                Loren Farfan                                                       Rochelle Davis

                818/642-8191                                                     323/823-4282

                [email protected]                            [email protected]

 

The advantages of borrowing from your retirement account are, the approval process is generally easier than getting a loan from a bank or other financial institution, and loan payments, including interest, are reinvested in your retirement account. Because the plan is a 457(b) it does not have an early retirement penalty if the loan is not repaid. The loan is simply taxed as income.  In addition, Nationwide debits your checking account and the loan repayments are not taken from payroll. Therefore if you separate from the County, the loan does not become due and repayments continue from your checking account. The disadvantages are the interest you pay on the loan are not tax-deductible will be taxed when you withdraw it after retirement, because loans are repaid with after-tax dollars and the money you put into the DC Plan was normally before-tax dollars. Also, the investment returns on your DC Plan investments may be more (or less) than what you pay yourself in loan interest. On the other hand, personal loan interest rates, whether you’re considering a loan from a bank, credit union or online lender, generally range from about 6% to 36% and the actual rate you receive depends on factors such as your credit score and history, annual income, existing debt and where you get the loan.

 

The loan application process can be done over the phone with Nationwide or in a self-service manner online and should only take about 5 – 10 minutes, but it will require a voided check from the applicant. Nationwide will go over the Loan Application process with you. Applications Nationwide receives by 1 PM Eastern Standard Time are processed the next business day, but the bank may take a few additional days to release the funds depending on their policies.

 

Give Nationwide’s Retirement Specialist team a call for the same services you would receive in an appointment at a time that works for you at 1-888-401-5272.  Phone center hours of operation are Mon-Thursday (8:30am-8:00pm EST) and Friday (8:30am-6:30pm EST)