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HomeMy WebLinkAbout14- ICMA Loan Agreement LOAN GUIDELINES AGREEMENT XVI. FEES Pees may be charged for various services associated with the application for and issuance of loans,All applicable fees will be debited from the participant's account balance and/or from the participant's loan repayments prior to crediting the repayment of principal and interest to the participanrs account. XVII. SIGNATURES The Employer has the right to set other terms and conditions as it deems necessary for loans from the plan in order to comply with any legal requirements.Employer certifies that all terms and conditions will be administered in a uniform and non-discriminatory manner. In Witness Whereof,the employer hereby caused these Guidelines to be executed this d,V, dayof S�P�mbt/1� 20 1 . M)cjih,Moak MoutG Sin, EMPLOY _ By; (' �'►rjS )4Ak"*kj Title: CA Attest: r 62 LOAN 11APtEALENTATION PACAAGE TOR 457/401 PUN SPONSORS I 12 Nr- 1CMAKC1 LOAN GUIDELINES AGREEMENT BrlLnx R.,i.rwo,t Sm.,iry The purpose of this agreement is to establish the terms and conditions under which the Employer will grant loans to participants.You should consider each option carefully before making your selections because your selections will apply to all loans made while the selection is in effect. If you later change any provision, the changes will apply only to loans made after the change is adopted.Loans in existence at the time of any future changes will continue to operate under the guidelines that were in effect at the time the loan was originally made. Please read the instructions and carefully complete all sectious of this agreement. L EMPLOYER PLAN INFORMATION Name of Plan(Enter the complete Employer name,includingstme): C/7Y OF BOZt�sfll�� /l/lDr(/T�/ Plan'Type: X457 Deferred Compensation Plan ❑401(a)Money Purchase Plan ❑401 Profit-Sharing Plan ICMA-RC Plan Number: 3 o 49 5 Lo 11. ELIGIBILITY&LOAN SOURCE Loans are available to all active employees,except those with an existing loan in default. 401 PIans—If your 401 plan is funded by a combination of Employer and Employee contributions,you must specify whether one or both of the following can be used as a source for participant loans. (Select one or both options below) ❑Employer Contribution Account(vested balances only) ❑Participant Contribution Accounts(pre-and post-tax,ifappliwblr,induding Employee Atandataiy.Employee Voluntary,Employer Rollover, and Portable Brnefn/Accounts,but excluding the Deductible Employee Contribution/Qualified Voluntary F,mplgee Contribution Account) Roth Assets(fapplieable)—If your 457 or 401(k)plan allows Roth contributions,a participant's Designated Roth Account balance will be included when calculating the amount a participant is eligible to borrow.However,you must specify whether or not a participant's Designated Roth Account can be used as a source for participant loans. (Select one option below) ❑A participant's Designated Roth Account will n t be available as a source for loans under the plan (default option) ❑A participant's Designated Roth Account will be available as a source for loans under the Plan. Note.lfRoth assets are availab4 as a source for loans,a loan that is deemed distributed will not satisfy the requirements for a qualifsed(tax-free) distribution of Roth assen. This may result in participants paying taxes on assert that rvauId otberwisr be available tax I. ill, LOAN PURPOSE Loans are available for the following purposes and must be requested in the corresponding method(releetone): IXAll Purposes—With this option, participants can request a loan for any reason.Participants will be able to request new loans or refinance existing loans using the Online Loans and Loans by Call Center options. ❑Hardship Only—With this option,loans shall only be granted in the event of a participant's hardship or for the purpose of enabling a participant to meet certain specified financial situations.Participants will need to complete the loan application form for your plan and obtain your approval(Online Loans and Loans by Call Center are notavailablc). The employer shall approve the participant's loan application after determining,based on all relevant facts and circumstances that the amount of the loan is nor in excess of the amount required to relieve the financial need,as defined by the employer.For this purpose, financial need shall include, but not be Iimited to:unreimbursed medical expenses of the participant or members of the participant's immediate family,establishing or substantially rehabilitating the principal residence of the participant, orpaying for a college education (including graduate studies) for the participant or his/her dependents. LOAN IMPLEMENTATION PwAu rot 457/401 PLAu SPONSOts 1 7 57 LOAN GUIDELINES AGREEMENT IV. APPLICATION PROCESS The loan application process will vary depending on the option you selected in Section Ill above(Loan Purpose). (A)ALL PURPOSES • Online Loans and Loans by Call Center—Participants can request a new loan or to refinance an existing loan using the ICMA-RC website at www.icmarc.org(Online Loans)or by speaking with an Investor Services Representative(Loans by Cull Center). Direct Check Issuance—ICMA-RC sends loan documents with the loan check to the participant.When the participant endorses the check,that endorsement signifies acceptance of loan terms. (B) HARDSHIP ONLY • Paper Application—A loan application must be completed,signed by the participant and approved by you,the employer. • Check Issuance—Upon receipt of an approved loan application,ICMA-RC will prepare the required loan documents(i,c.,the promissory note and loan disclosure statement),and send them to the employer with the loan check. — The loan check may not be given to the participant until the loan documents have been signed by the participant.Because The promissory note is considered a plan asset,all loan documents must be completed and preserved for at least the life of the loan.'rhe employer should retain the original loan documents and send copies of all documents to ICMA-RC The loan amount will generally be redeemed from the employee's account on the same day as either ICMA-RC receipt of a loan request/application(complete and in good order),if it is submitted prior to 4:00 p.m.ET on a business day.If not,the loan amount will be redeemed on the next business day following submission.The loan check is generally issued on the next business day following redemption,and will be mailed directly to the employee.'The employee's presentment of the loan check for payment constitutes an acknowledgment that the employee has received and read the loan disclosure information provided by ICMA-RC and agrees to the terms therein. V. MAXIMUM NUMBER OF LOANS(SELECT ONE) Participants may receive one loan per calendar year.Please specify whether participants may have only one(1)or up to five(5)loans outstanding at one time. ❑One(1).Participants may have only one(1)outstanding loan at a time. Five(5).Participants may have up to five(5)loans outstanding at one time. ❑Other.Participants may have up to (enter 2,3,or 4)loans outstanding at one time. VI. LOAN AMOUNT Maximum:The maximum amount of all loans to a participant from the Plan rind all otherplans ofncc Emplo),er that are either eligible deferred compensation plans described in section 457(b)of the Code or qualified employer plans under Section 72(p)(4)of the Code (e.g,401(a)plans)shall nor exceed the lesser of. (]) $50,000,or (2) One-half of the value of the Participant's interest in all of his or her Accounts under this Plan. When calculating the maximum amount a participant is eligible to borrow from his/her account,the lesser value of(1)or(2)above mast be reduced by the participant's highest outstanding loan balance over the past 12 months. Minimum:The minimum loan amount is$1,000. A loan cannot be issued for more than the maximum amount.The participant's requested loan amount is subject to downward adjustment without notice due to market fluctuation between the time of application and the time the loan is issued. Loan amounts will be taken pro-rats from all of a participant's investments. 58 MAN hApi[jumuTIoN PAtxASE Fot 457/401 PLAN SPONSORS I 8 LOAN GUIDELINES AGREEMENT VII. LENGTH OF LOAN Loans must be repaid in substantially equal installments of principal and interest over a period that does not exceed five(5)years. Principal Residence Loans If the participant will be using the loan to purchase a principal residence, the five(5)year time limit does not apply. Participants can repay a principal residence loan over a period of up to 30 years. Please specify the maximum repayment period for principal residence loans from your plan below. Maximum repayment period for principal residence loans= 30 (Enter a number ofyears,sip to 30) VIII. LOAN REPAYMENT PROCESS Specify the repayment method(s)and repayment frequency your plan will use.Note that loan amounts plus interest,minus applicable fees paid to 1CMA-RC,are repaid to participant accounts and not to ICMA-RC.You can allow repayments to be made via payroll deduction and/or ACH payments from a participant's bank account. Loan repayments must be made at least monthly(457)or quarterly(401). Repayment Method (Selecr One): ....................................................... ❑Payroll deduction only. ❑ACH debit only.* Employee may choose either payroll deduction or ACH debit ACH Refect Fee—Please note a.$20 processing fee will br ossrssed to a participant i ICNIA-RC arrount when a rrbeduled lnan repaymew(s)nia ACH is rejecred due to insufreieut funds, invalid bm,k,iciount inforniation,oraccount closure in rbe parriripant's designated payment aeeowo. Repayment Frequency(Select One): ...................I........ Repayments through payroll deduction will be sent via check or wire by the Employer to ICMA-RC on the following cycle(rboose one): ❑Weekly(52 per year) ❑Bi-weekly(26 per year) ❑Semi-monthly(24 per year) Monthly(12 per year) ❑Quarterly(4 per year)—Available to 401 plans only. Initiating Repayments: • ACH debirs from the employee's designated bank account will begin approximately one month following the date the employee's signed ACH authorization form is received and processed by ICMA-RC,or,in the case of online loans,approximately one month following the date the loan check has been cleared for payment.Debits will normally be made an a monthly basis. • Payroll deduction should begin within two payroll cycles following the employee's receipt of the loan. Employees using this method mast notify the Employer immediately so char repayments will begin as soon as practicable,on a date determined by the Employer's payroll cycle.Failure to begin payroll deduction in a timely manner could lead to the employee's loan entering delinquency status. Investment of Loan Repayments All loan repayments are invested according to the instructions the participant has on 61e for the investment of contributions to his/her account. Additional Loan Repayments and Early Pay-Off A participant may pay off all or a portion of the principal and interest early without penalty or additional fee. Extra payments arc applied Forward to both principal and interest as specified in the original repayment schedule,unless the additional payment is for the full balance due.Please note that no payment date may be"skipped"even if the employee has made a large payment or submitted multiple payments. LOAN IIAPtEVENTATION PUKAR FOR 457/401 PLAN SmsckS 1 9 59 LOAN GUIDELINES AGREEMENT VIII. LOAN REPAYMENT PROCESS (conjoro) Loans in Default Participants using the ACH repayment option may default on their loans for lack of repayment more frequently than those using the payroll deduction method. For this reason,you may choose to require that certain participants use the payroll deduction repayment method. Multiple Loans If a participant has multiple loans outstanding from the plan,each loan repayment mast be separately repotted to 1CMA-RC. Former Employees and Leave of Absence Former employees and employees on a leave of absence must repay their loans on the same schedule that would have applied had they continued employment. Your plan may allow terminated employees to continue to repay their loans either through ACH, or by giving/striding you a check each repayment period(see the Acceleration section),If you allow terminated employees to repay loans by giving/sending you a check,you will include the repayment amounts in your next regular employee contribution remittance to ICMA-RC. In certain situations,employers may suspend loan repayments for a period of time for employees on a leave of absence or military leave. Please refer to Treasury Regulation section 1.72(p)-1,Q&A-9 for more information. Repayments Must Continue In implementing a loan program you should be aware that some employers have had to contend with the inability of some participants to repay their loan(s).You should be aware That you may not stop taking loan repayments from the employee's paycheck—'even if the employee asks that repayments be stopped.Failure to payroll-deduct loan repayments on schedule could both jeopardize the eligibility or qualification of the entire plan as well as create a taxable event for the participant.Likewise,if an employee is repaying the loan through ACH debit of his/her bank account,and the employee fails to make payments, this could jeopardize the eligibility of your retirement plan.Employers are ultimately responsible for ensuring that loans are repaid according to the loan terms. ICMA-RC will notify both you and the employee if a payment has not been received. 1X. LOAN INTEREST RATE The loan interest rates are set for non-residential loans at the prime rare plus 0.5%,and for principal residence loans at the FHA/VA rate. The interest rate for new loans fluctuates from month-to-month.The rates for the following month are determined on the last business day of the month using www.mone),cafc.com/library/primcrate.hrm(prime rate)and www.citimortgage.com(principal residence rate). When a new loan is approved, the interest rate is locked in and remains constant throughout the life of the loan. X. SECURITYAOLLATERAL At the time a loan is taken, 50 percent of the participant's account balance or the amount of the loan,whichever is less,will be used as collateral for the loan. XI, ACCELERATION(Sf1fa ONE) Plcase specify whether participants who have separated from service will be able to continue loan repayments until they have withdrawn their entire account balance from the plan,or if outstanding loans will be due and payable at the time the participant separates from service, All outstanding loans shall be due and payable by a participant upon: ❑Separation from service.All loan repayments must stop following an employee separating from service. Distribution of his/her entire account balance.Employees can continue making loan repayments until they have withdrawn Their entire account balance. Outstanding loan balances that are not repaid will be reported as distributions to the participant.See the Deemed Distributions section for additional information. 60 LOAN IMPLEMENTATION FwACE fDA 457/401 PEAK SpoNsots I 10 LOAN GUIDELINES AGREEMENT XIi, REAMORTIZATION Reamortization changes the terms of an outstanding loan (e.g., repayment period,interest rate,frequency of repayments).Any outstanding loan may be reamortized, Reamortization cannot extend the repayment period beyond five(5)years from the date the loan was originally issued. Or,in the case of Principal Residence Loans,beyond (due number of years specified in Sectiou VII]years from The date the loan was originally issued. Participants can use a loan amortization form to request That an outstanding loan be reamortized.Upon processing the request,a new disclosure statement will be sent to the employer for endorsement by the participant and approval by the employer.-the executed disclosure statement must be returned to the plan administrator within 10 calendar days from the date it is signed.The new disclosure statement is considered an amendment to the original promissory note,therefore a new promissory note will not be required. Nate.,A loan reamortization will not be considered a new loqu for purposes of calculating the number of loans outstanding or the one Inan per calendar year limit. XIII. REFINANCE Refinancing involves a new loan replacing an employee's outstanding loan.The refinanced loan must be repaid over a period that does not exceed five(5)years from the date when the original loan was issued. Actively employed participants with one(1)outstanding loan may elect to refinance the outstanding loan for an additional amount, subject to the loan amount limitations outlined in Section VI,provided that The participant has not yet taken out a loan during rile calendar year.Participants with multiple outstanding loans,and those who are no longer employed,are not eligible to refinance an existing loan. Note;Principal residence loans are not rligible for refinance. XIV. REDUCTION OF LOAN If a participant dies prior to full repayment of the outstanding loan(s),the outstanding loan balances)will be deducted from the account prior to distribution to the beneficiary(ies),The unpaid loan amount is a taxable distribution and may be subject to early withdrawal penalties.The participant's estate is responsible for taxes and penalties on the unpaid loan amount,if any.A beneficiary is responsible for taxes due on the amount be or she receives.A Form 1099 will be issued to both the beneficiary and the estate for tax reporting purposes. A DEEMED DISTRIBUTIONS A loan will be deemed distributed when a scheduled payment is still unpaid at the end of the calendar quarter following the calendar quarter in which the payment was due.When a loan is deemed distributed,the principal balance and any accrued interest is reported to the IRS as a taxable distribution.However,since the participant received the loan amount previously,no money is actually paid to the participant as part of a deemed distribution. The loan is deemed distributed for tax purposes,but it is not an actual distribution and therefore remains an asset of the participant's account. Interest continues to accrue.The outstanding loan balance and accrued interest are reported on the participant's account statements. Repayment of a deemed distribution will not change or reverse the taxable event. 'the loan continues to be outstanding,and to accrue interest,until it is repaid or offset using the participant's account balance.An offset can occur only if the participant is eligible to receive a distribution from the plan as outlined in the plan document.Participants are required to repay any outstanding loan which has been deemed distributed before they can be eligible for a new loan.The deemed distriburion and any interest accrued since the date it became a taxable event is Taken into accotutt when determining the maximum amount available for a new loan.New loans must be repaid through payroll deduction. Important Note:The employer is obligated by federal regulation to comply with the loan guideline requirements applicable to partieipans loans,and to ensurr against dinned distribution by monitoring loan repayments,regardless of the method of repayment,and by advising employee;if loan!are in danger of bring deemed distributed. The tax-qualified srarsts or eligibility of the entire plan may be revoked in eases of frrquent repayment delinquency or deemed distribution. To assist plan sponsors whose plan options include loans,ICMA-RC will provide reports of participants with payments delinquent by 30 to 89 days, 90 or more days but not yet deemed,and those whose loans have been deemed distributed.ICMA-RC is committed to supporting employers who request assistance with Their loan programs in order to reduce the number of delinquent loans and decrease the occurrence of deemed distributions. LOAN hApaMEN ooN PA(tA61 w 457/401 P(AN SPONSORS I 11 61 Maximum loan Amount Worksheet The maximum amount a participant can borrow from his or her account is$50,000 or 50%of the account balance,whichever is less. However,the amount must be reduced by a participant's highest outstanding loan balance over the past 12 months(which,obviously, only impacts participants who have previously taken a loan from a 457 or qualified 401 plan).The minimum amount a participant can borrow is$1,000. EXAMPLE 1 Michael has never taken a loan from his account before and his 457 plan account balance at the close of business yesterday was $84,000.'Io calculate the maximum loan amount he is eligible to receive,we need to determine if 50%of his account balance ($84,000 x 50%=$42,000)is greater than or less than$50,000.Jn this case, 50%of his account balance is less than$50,000, so the maximum loan amount Michael is eligible to receive is$42,000. EXAMPLE 2 Kathy has never taken a loan from her account before and her 401 plan account balance at the close of business yesterday was $240,000.1n this case, 50%of Kathy's balance($240,000 x 50%=$120,000)is greater than$50,000,so the maximum loan amount Kathy is eligible to receive is$50,000 (the lesser of the two amounts). EXAMPLE 3 Pam took a$15,000 loan from her account eight months ago(in the previous calendar year)and her 457 plan account balance at the close of business yesterday was$130,000.In this case, 50%of Pam's balance($130,000 x 50%=$65,000)is greater than$50,000, but that amount must also be reduced by her highest outstanding loan balance over the past 12 months,so the maximum loan amount Pam is eligible to receive is$35,000. ($50,000—$15,000=$35,000) MAXIMUMOA AMOUNT WORKSHEET Example Worksheel Template (using numbers homExample 3 obove) 1) Enter 50%of the participant's total plan account balance. 1) $ 1) $65,000 2) Enter the answer to#1 or$50,000,whichever is less. 2) $ 2) $50,000 3) Enter the participant's highest outstanding loan balance over the past 12 months 3) —$ 3) —$15,000 (from all of your plans combined), if applicable, 4) Subtract#3 from#2 and you have the maximum amount the participant is 4) $ 0•00 4) $35,000 eligible to receive as a new loan. (maximum louramount) LOAN IMPLLMtN]ATION PAUAGt foR 457/401 PLAN SPONSORS 1 13 63 SUGGESTED RESOLUTION FOR A LEGISLATIVE BODY «MA- `'� RELATING TO AMENDING A RETIREMENT PLAN TO PERMIT LOANS B,ri[!i„r R<hmxrnr S.ex,iry 401 Money Purchase Plan# 10____ 401 Profit-Sharing Plan# 10____ 457 Deferred Compensation Plan# 30_—__ Name.of Employer: State: Resolution of the above named Employcr("Employer") WHEREAS,the Employer has employees rendering valuable services;and WHEREAS,the Employer has established a retirement plan (the"Plan") for such employees which serves the interest of the Employer by enabling it to provide reasonable retirement security for its employees,by providing increased flexibility in its personnel management system,and by assisting in the attraction and retention of competent personnel;and WHEREAS,rbe Employer has determined that permitting participants in the retirement plan to take loans from the Plan will serve these objectives; NOW THEREFORE BE IT RESOLVED that the Plan will permit loans. Clerk of the(City,County,etc.)of do hereby certify that the foregoing resolution, proposed by(Council Member,Trustee,etc.) was duly passed and adopted in the(Council,Board,etc.)of the(City, County,etc.)of at a regular meeting thereof assembled this day of 20__,by the following vote: AYES: NAYS: ABSENT: CI•Ftt,K OF THE(CJ-rY,COUNTY,F.Tc.) -X .'ugS T-177VZ: el" IQF902-U7;OiIV IVI �/55y Mail or fax copies of all completed documents to ICMA-RC. Fax to: OR Mail to: 202-962-4601 ICMA-RC ATTN:NBU Analyst ATTN.-NBU Analyst 777 North Capitol Street,NE Washington,DC 20002-4240 64 LOAN 1JAREMENTAVON PACKAGE roi 457/401 PLAN SpusOts 14 v � w 'Ci'�;N .Mo��T;•c co COMMISSION RESOLUTION NO. 4554 A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF BOZEMAN, MONTANA, AMENDING THE ICMA-RC 457 DEFERRED COMPENSATION PROGRAM TO PERMIT LOANS TO PARTICIPANTS. WHEREAS, the City has sponsored a deferred compensation retirement plan ("the Plan") in compliance with Internal Revenue Code section 457(b), through the International City Manager's Association (Plan No. ICMA-RC 457 #300556); and WHEREAS, the City has employees rendering valuable services to the community; and WHEREAS, the Plan has been established for such employees, which serves the interest of the City by enabling it to provide reasonable retirement security for its employees, by providing increased flexibility in its personnel management system, and by assisting in the attraction and retention of competent personnel; and WHEREAS, the City has determined that permitting participants in the Plan to take loans from the Plan, in compliance with Plan rules, will serve these objectives; and NOW, THEREFORE, BE IT RESOLVED by the City Commission of the City of Bozeman, Montana: The Plan will permit loans. PASSED AND APPROVED by the City Commission of the City of Bozeman, Montana, at a regular session thereof held on the 15th day of September, 2014. Page I of 2 Resolution 4554 —Amending TCMA-RC 457 Plan J F K. KRAUSS ayor ATTEST: p S` " °• � ' STACY L .E a C1VIC ,3� City Cl rk r �:� •�� APPROVED AS TO FORM: r 'n GREG SU' LIVAN City Attorney Page 2 of 2