Plan - Loan tab

Maximum Number of Open Loans

Enter the maximum number of outstanding loans a participant may have at any given time.

Required if loans are permitted

Maximum Number of General Purpose Loans

Enter the maximum number of outstanding general purpose loans a participant may have at any given time.

Required if loans are permitted

Maximum Number of Residential Loans

Enter the maximum number of outstanding principal residency loans a participant may have at any given time.

Required if principal residency loans are permitted

Maximum Loan Requests Per Year

Enter the number of loans a participant may request during a year. A year can either be defined as a rolling year or a calendar year. If the plan allows a participant to have multiple loans (more than one) and there is a limit on how many loans can be taken in any year, you must select either Actual Year or Calendar Year.

Required if multiple loans are permitted and there is a limit on how often a loan can be requested.

Actual Year

Select this option to allow the participant to take loans based on a twelve-month period. For example: If Loan #1 is issued on December 1, 2007, a second loan can not be requested until December 1, 2008.

Required if loans are permitted and there is a limit on how often loans can be issued

Calendar Year

Select this option to allow the participant to take loans every calendar year. For example: If Loan #1 is issued on December 1, 2007, a second loan can be requested on January 1, 2008.

Required if loans are permitted and there is a limit on how often loans can be issued

Maximum General Purpose Term (months)

Enter the maximum term of the general purpose loan length expressed in months. General purpose loans commonly are issued for a length of up to 5 years (60 months).

Required if loans are permitted

Min Term (months)

Enter the minimum term of any loan length expressed in months. Some plan documents / loan policies state that a loan must be issued for a minimum of one year (12 months).

Required if the plan states that a loan must be taken for a minimum number of months.

Max Residential Term (months)

Enter the maximum term of the principal residency loan length expressed in months. There is no maximum limit set by regulation for principal residency loans. However, a generally accepted fiduciary standard is that no loan term should extend past normal retirement age. The IRS opined unofficially in 2004 that the maximum term is what is "commercially reasonable."

Optional

Number of Months Between Loans

Enter the number of months between a loan payoff date and the date of the next allowed loan request. This field works in conjunction to the 'Maximum Number of Open Loans' and 'Maximum Number of Open Loans Per Year' functions.

Example: The plan sets the following loan parameters:
2 Maximum # of Open Loans
1 Maximum Number of Loans Per Year based on a Calendar Year
3 Months Between Loans
Loan #1 is issued on June 1, 2007
Even though three months later is September 1, 2007, since only 1 loan can be issued each calendar year, Loan #2 cannot be issued until January 1, 2008

Optional

Loan Payment Sequence Identifier

Allows users to import, through conversion files, allocations to be used for loan payments. Users will need to create a separate contribution sequence using the Setup > Plans > Contribution Sequence option and a profile using the Interfaces > Profile Maintenance > CONV ALLOC window for the loan payment allocation conversion. Once completed, an allocation for the source LOANPY will be visible on the Transactions > Allocations window. (add link)

Optional

Maximum % to take from a source

Enter the maximum percentage that can be withdrawn from each money source. This percentage will apply to all sources. This feature will minimize the probability of a Loan transaction error during the posting process due to a money source that was totally exhausted. Loans can be taken from sources elected by a participant (i.e. 100% pre-tax) to facilitate the repayment process. Alternatively, loans can be withdrawn from all sources on a pro-rated basis or they may be taken from a hierarchy of sources (1st after-tax, then pre-tax, etc.). Under each of these methods, no one source should be exhausted - it's either a manual process in which the user hardcodes the loan by money source or TSM SmartClient continues to withdraw from subsequent sources when previous sources are exhausted. This field seems to be unnecessary. Profiles and programming language can be used together to relieve TSM SmartClient of this additional calculation.

Optional

Allow Terminated/ Deferred Loans

Select this check box to allow the terminated participant to continue paying back outstanding loans. If not, loans for terminated participants should be defaulted according to the plan's loan policy.

Optional

Include Fee In Principal

Select this check box to process the loan fee in addition to the initial amount of the loan request. If not selected, the loan amount will be net of the fee. Note: You must establish the transaction rules for a loan fee in the Setup > Transaction Rules > Transaction Fees option for the loan fee to be processed automatically at the time of the loan transaction.

Optional

Include Fee When Calculating APR

Select this check box to make the cost of the loan equal to interest on the loan plus the fee for the loan.

Optional

Use original source allocations for loan payment transactions

If selected, TSM SmartClient will process loan repayment transactions to the specific contribution sources that funded the loan. If that source does not have an Investment Direction, TSM SmartClient will use the SYSDEF allocation. In both cases, TSM SmartClient will use the investment direction in effect at the time of the loan repayment.

Optional

Fee Charged for Military Loans

If selected, the loan fee amount will appear in the 'Fee Amount' field on the Transactions > Loans > Loan Input > Loan Adjustment tab when a loan is flagged as a military loan. This amount is defined in the Setup > Transaction Rules > Transaction Fees option, (add link)

Informational Only

Suspend Contributions

Enter the number of months a participant will not be allowed to submit contributions if he takes a loan. This will automatically populate the 'Suspend Contributions' date field on the Setup > Participants > Participant screen when a loan is processed.

Optional

Minimum Loan Amount

Enter the minimum dollar amount allowed for a general purpose or a principal residency loan.

Required if the plan states a minimum loan issuance amount

Promissory Note

Enter the name of the promissory note you will be using. Multiple promissory notes are available on TSM SMARTCLIENT for use, including the generic PROMIS and PROMIS1. To create custom promissory notes, contact Customer Services with your request.

Optional

Loan Tolerance

Enter the amount that TSM SmartClient will accept as a reasonable amount to disregard as an outstanding balance. This field was designed to eliminate any small remaining balances that may occur.

Note: We recommend that the Loan Tolerance be less than any single loan payment amount.

Optional

Use Prime Rates

Select this check box to use the prime interest rate entered on the Setup > System > Control screen for all plan loans. If the loan interest rate is some variance of the prime rate, this check box should also be selected.

Optional

Override General Purpose Loan Rate

Use this field if the plan uses a rate that differs from the default Loan Rate entered in the Setup > System > Control option. The value entered here will display in the 'Rate' field on the Transactions > Loans > Loan Input window. When a participant requests a loan over the VRU or Participant web site, TSM SmartClient will use this loan rate. If no rate is entered here, TSM SmartClient will use the default loan rate.

Optional

Override Residential Loan Rate

Use this field if the plan uses a rate that differs from the default Loan Rate entered in the Setup > System > Control option. The value entered here will display in the 'Rate' field on the Transactions > Loans > Loan Input window. When a participant requests a loan over the VRU or Participant web site, TSM SmartClient will use this loan rate. If no rate is entered here, TSM SmartClient will use the default loan rate.

Optional

General Purpose Prime Rate Variance

This field is used in conjunction with the 'Use Prime Rates' checkbox and the prime rate established on the Setup>System>Control window. The amount entered here allows for a plus or minus variance to the existing prime rate.

Optional

Home Loan Prime Rate Variance

This field is used in conjunction with the 'Use Prime Rates' checkbox and the prime rate established on the Setup > System > Control screen. The amount entered here allows for a plus or minus variance to the existing prime rate. Home loan in field label should be changed to either residential or all residential labels should be changed to principal residency to conform with IRS and plan document defined terminology.

Optional

Allow Additional Principal

Select this check box to allow additional principal to be paid, in addition to the scheduled loan payment.

Optional

Spousal Consent

Select this check box if spousal consent is required in order to initiate a loan. The promissory note will include the appropriate wording for spousal consent. Spousal consent is only required for loans issued by plans subject to qualified joint and survivor annuity rules.

Optional

Exhaust loans before hardship withdrawal

Select this check box to prohibit participants from taking hardship withdrawals until they have executed all loan possibilities.

Optional

IRS = $10,000 Loan Limit

Select this check box to allow the participant to take out a loan of up to $10,000 if he has more than $10,000 fully vested, but not necessarily the full amount needed to usually borrow $10,000.

Optional

Amortization Schedule by Dates

Select this check box to change from the standard amortization schedule. The default for showing a loan report is by amount of loan and number of payments remaining. If selected, the Loan Report will display the amortization schedule by dates using the '1st Pmt Date' and the 'Payment Frequency' as set up on the Transactions>Loans>Loan Input option.

Optional

Pay Interest to original money type

Select this check box to allocate loan repayments to the original money sources of the loan. If not selected, TSM SmartClient will allocate loan repayment interest amounts to a system created source " INCOME" and the principal amounts to the original sources.

Optional

Hardship Loans Only

Select this check box to allow participants to take a loan for hardship purposes only. If this box is checked, a participant will not be able to initiate or model a loan through either the Participant web site or the VRU. Note: The VRU and Internet will allow inquiries on existing loan balances.

Optional

Regulation Z

Select the Regulation Z check box to identify this plan as writing more than 25 participant loans in either the current or preceding calendar year. A plan that meets this criteria is subject to the general disclosure requirements of the Truth-in-Lending Act with regard to the 26th and any subsequent loans made during the year. Furthermore, if the plan, trust or trustee makes more than five mortgage loans during the year, it is subject to the same disclosure requirements [PL 90-321, Sec. 226.12(a)(17)]. The disclosure requirements, however, are not onerous. For that reason, the prudent administrator of any larger qualified plan may well want to include a "Truth in Lending Disclosure" as a part of its standard loan package.

Optional