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Watch for Common Plan Loan Errors

By NTSA Net Staff • October 04, 2017 • 0 Comments
During challenging economic times, some plan participants turned to plan loans to meet financial needs that they could not otherwise meet. That can create difficulties down the road for participants, but immediate complications for plan administrators.

A recent blog entry identifies three errors in particular that plans should try to avoid. In “Three Loan Errors that Might Be Occurring in Your Retirement Plan Right Now,” Michael Webb of Cammack Retirement offers his ideas on common errors plans sometimes make in handling plan loans.

Payment Frequency. Webb says that plans sometimes fail to administer payments with the correct frequency. For instance, it is possible that a loan may have an amortization schedule that is biweekly, but the plan may be making the payments semimonthly. This difference may seem slight, but can result in a different number of payments per year — 26 in the former, 24 in the latter.

Maximum Loan Limit. Webb says he has found that a problem is more likely to arise regarding administration of maximum loan limits when a plan maintains multiple plans or has multiple recordkeepers.

Loan Repayments. Webb notes that there can be trouble regarding administering loan repayments properly while an employee is out on an unpaid leave of absence and after that period ends. The most common mistakes in this regard concern non-military leaves of absence. This, he says, is because in non-military leaves of absence the original loan term is not extended, whereas with the military leaves of absence repayment periods are extended by the length of absence.

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