How Do I Apply For A Loan?
Simply log in to your Plan account to model a loan that meets your needs. In order to receive a loan from the Plan, you must complete a loan application and return it to Nationwide®. A request for a General Purpose loan may be submitted through the website, however for loans intended to be used to purchase a Primary Residence, you will be required to print the loan application from the website and mail it, along with additional supporting home purchase documentation, to Nationwide. You may also contact Nationwide’s national service center at (877) 677-3678 to discuss loan options with a representative.
If you take a loan, you will be borrowing from your Plan account. Once you have taken a loan, you are obligated to repay the loan plus interest to your Plan account in monthly installments within a specified period of time. Before considering a loan, you should carefully examine all of your options and/or consult with a financial planner or tax advisor.
What are the pros and cons?
There are advantages and disadvantages to taking a loan against your account balance. Weigh these points carefully before making your decision.
Advantages of retirement plan loans:
- Loan approval is easier than with a bank or other financial institution
- Competitive interest rates
- No credit check - you're essentially borrowing from yourself
- Reasonable repayment terms
- May be an alternative to an unforeseeable emergency withdrawal
- No taxes to pay as long as loan conditions are satisfied
- You essentially "pay interest to yourself," rather than a conventional lender
Disadvantages of retirement plan loans:
- Lost investment opportunity
- Loan repayments may impact your ability to make regular contributions to the Plan
- Failure to repay the loan will result in fees and taxation
- Interest will be taxed twice
- Interest on a retirement plan loan is not tax deductible
- You may incur a 10% additional tax if you default prior to age 59½
Loan program highlights
The following are some features of the Plan’s Loan Program:
|Types of Loans Permitted||General Purpose and Primary Residence|
|Minimum Loan Term||1 year|
|Maximum Loan Term||General Purpose: 5 years
Primary Residence: 20 years
|Maximum Number of Loans||Up to three (3) outstanding loans at one time, regardless of type|
|Minimum Loan Amount||$1,000.00 per loan|
|Maximum Loan Amount||Generally, the lesser of
(1) 50% of the value of your Plan account* or
See below for more additional details.
|Interest Rate||The interest rate is the prime rate published in the Wall Street Journal two weeks prior to the end of the most recent calendar quarter plus one percent (1%). The interest rate in effect at the time the loan is funded will apply for the term of the loan. An exception may apply in cases of military leave.|
*If a portion of your account is allocated to the Self Directed Investment Account/Schwab Personal Choice Retirement Account (PCRA®), the amount in your PCRA will be considered when calculating your maximum loan amount.
Loan program fees
The Loan Program will assess the following fees for each loan taken, which will be deducted from your Plan account, from all core investment options on a pro-rata basis:
- A Loan Application Fee of $50.00 which will be deducted upon approval of each loan.
- An Annual Loan Maintenance Fee of $25.00 to be assessed to your Plan account for each outstanding loan until such time as the loan is repaid in full, defaulted or offset due to account liquidation.
- A $25.00 Failed Payment Fee to be assessed in the event that an ACH withdrawal fails.
- A $50.00 Default Fee will be assessed in the event of a default.
You will generally qualify for a loan if you are a current Participant in the Plan, regardless of employment status, with Cook County or the Cook County Forest Preserve District. You may have up to three (3) outstanding Plan loans at a time. You must have an accumulated account balance of $2,000.00 in order to qualify for the minimum loan of $1,000.00. If you have three (3) outstanding loans, you must repay at least one (1) of the outstanding loans before you will be eligible to take another loan. If you default on a Plan loan, you will not be able to take another Plan loan until the defaulted loan has been repaid in full, including any accrued interest and fees.
The maximum loan amount of $50,000.00 will be reduced by the highest balance of any outstanding loans or satisfied loans you have or have had, from this Plan and any other retirement plans sponsored by your employer, within the last 12 months. The highest loan balance within the last 12 months from all plans (including a defaulted Plan loan that has been repaid) must be deducted from the $50,000 maximum loan amount that may be borrowed from your Plan account.
Your loan will be funded from your deferred compensation account for the approved amount of your loan. For those who have rolled assets in from other retirement accounts, loans will be funded pro-rata from rollover sources and the salary reduction source, unless you request funding from a particular source. If you hold assets in the self-directed brokerage account, you may be required to move funds from the PCRA to your core investment options so that sufficient funds are in your account to process the loan for the full approved amount. Loans may not be funded by any after-tax sources, such as Roth contributions or rollovers, as applicable. Your loan amount will be funded from your core investment options within the sources available for loans on a pro-rata basis, unless you specifically request funding from particular investment options.
Repayments will be automatically deducted from your checking or savings account on a monthly basis with after-tax dollars and reinvested in your Plan account, according to your current investment elections. Payments must be made in substantially equal amounts over the term of the loan. You may pay off your loan, in full, without a prepayment penalty. Partial prepayments will not be accepted.
If a loan payment is rejected due to insufficient funds in your bank account or any other reason, your account will be assessed a $25.00 Failed Payment Fee for each payment missed. Nationwide will then attempt a double payment on the next payment due date. If the double payment is rejected, then your account will be assessed another $25.00 Failed Payment Fee and your loan will go into default. For this reason, it is important that you keep sufficient funds in your bank account to cover your payments. In the event your bank information changes or you need to change the bank account from which your payments are taken, please contact Nationwide a minimum of ten (10) days prior to your scheduled payment date to provide the necessary bank account details so your payments are uninterrupted.
If you are on military leave, you may request that your loan re-payments be suspended until the completion of your military service. Interest will continue to accrue at your current interest rate or 6%, whichever is less, during the period of your military leave. The loan repayment period may be extended up to the length of your military service leave and may be re-amortized. You must notify Nationwide of your leave and return dates, which Nationwide will verify with the County or Forest Preserve District.
If you are on an approved medical leave of absence without pay for a minimum of six months, or with pay if your income is less than your required installment payment, you may request that your loan re-payments be suspended during your approved leave of absence, but not for longer than one year. Interest will continue to accrue at the current interest rate during the suspension period. The loan repayment period may not be extended but may be re-amortized at the end of your loan suspension period. You must notify Nationwide of your leave and return dates, which Nationwide will verify with the County or Forest Preserve District.
You may not transfer your outstanding Plan loan to another retirement plan or transfer an outstanding loan from another retirement plan into the Plan.
If you miss two (2) payments in a row, the entire unpaid balance of the Plan loan (including accrued interest) will be considered in default. A loan in default will be considered a deemed distribution for tax purposes at the time of the default. If you default on a Plan loan, an IRS Form 1099-R will be issued by January 31 of the following year making the unpaid loan balance taxable to you in the year the default occurs, even if you repay the defaulted loan amount in the same tax year. You will then be responsible for paying income tax and any applicable excise taxes on the amount of the loan default. In addition, a $50.00 Default Fee will be assessed against your Plan account. You may not borrow from your Plan account again until you have paid back the defaulted loan plus any interest accrued since the default. Defaulted loan balances that are repaid are maintained within your account on an after-tax basis.
You may take a partial distribution from the Plan, upon meeting an approved distributable event, and may continue to make payments on outstanding loans. However, if you fully distribute 100% of your account balance, the balance of any outstanding loan(s) will be offset and treated as a distribution from the Plan at the time of the offset. Income tax withholding may be taken from your lump sum distribution proceeds (that are not rolled over) for the loan offset amount in addition to income tax withholding on the actual lump sum distribution amount. An IRS Form 1099-R will be issued to reflect the total of any distributions, in addition to income tax withholding, by January 31 of the year following the year of the distributions.
This document was created to help educate participants in the County of Cook and Cook County Forest Preserve District Deferred Compensation Plan and is intended only to provide a general summary of the Plan’s loan program and its features. This is not intended to be tax advice and cannot be relied upon as such. Contact your tax advisor with questions regarding any potential tax impacts of taking a Plan loan. In the event there are any inconsistencies between this document and the Plan Document/Participant Loan Policies and Procedures, the Plan Document/Participant Loan Policies and Procedures will govern.