Policy on Loans North Carolina Supplemental Retirement Plans

Adopted: August 26, 2021
Last Revised: November 30, 2023

Loan Fees

1. Application fee. The recordkeeper will charge participants a one-time, non-refundable application fee of $60 for each new loan. The recordkeeper is Empower as of the effective date of this policy.
    
2. RESERVED
    
3. Maintenance fee. The plans do not charge a loan maintenance fee but may impose such fee by amending this policy. However, the maintenance fee will apply only to loans issued following the effective date of the fee.
    
4. The Department or the Board may increase a fee, but such fee will apply only to loans issued following the effective date of the increased fee. 
    

Application Methods

1. Participants may apply for loans by telephone (866-627-5267) or online.

Disclosure of Outstanding Loans

1. When applying for a loan, a participant must notify the recordkeeper of the participant’s defined contribution plan loans and their amounts, including any loans that have been deemed distributed, that are outstanding or that have been outstanding within the past 12 months, whether such loans are from the Supplemental Retirement Plans or other defined contribution plans.
    

Maximum Loan Amount

1. A participant with an account balance of $20,000 or less can borrow the lesser of (i) 100% of the account balance; or (ii) $10,000.
    
2. A participant with an account balance greater than $20,000 can borrow the lesser of the following:
   • $50,000, reduced by the excess, if any, of the participant’s highest outstanding loan balance from the Supplemental Retirement Plans during the one-year period ending on the day before the date on which such loan is made; or
      
   • 50% of the participant’s account balance.
      
   • Pursuant to Internal Revenue Code Sections 72(p)(2)(A) & (D), the maximum loan amount may be reduced by a participant’s previous loans from defined contribution plans other than the Supplemental Retirement Plans. A participant is solely responsible for complying with these restrictions and reducing the requested loan amount from the Supplemental Retirement Plans accordingly.

Minimum Loan Amount

1. The minimum loan amount is $1,000.
    

Maximum Number of Loans

1. A participant may have a maximum of one outstanding loan from each Supplemental Retirement Plan at any given time. An “outstanding loan” includes a loan for which a deemed distribution has occurred following a participant’s default and the defaulted loan has not been repaid or offset.
    

Interest Rate

1. The interest rate for a loan is equal to the prime loan rate, as reported by the U.S. Federal Reserve on the last business day of the prior calendar quarter, plus one percentage point. The Department or the Board may change the method for determining the interest rate, but such change will apply only to loans issued following the effective date of the new method.
    

Term of Loan

1. General. The maximum term of a loan is five years, except as otherwise provided in this policy. The minimum loan term is one year.
    
2. Residential loan. Notwithstanding part (a), the maximum term of a loan is 15 years if the loan is used to acquire a participant’s principal residence. In order to determine whether a loan will be used to purchase a participant’s principal residence, a participant must submit the following to the recordkeeper: (i) a copy of the purchase contract; or (ii) a signed statement from the participant that the loan will be used to purchase or build the participant’s principal residence within a specific period of time.

Refinancing

1. The refinancing of a loan is not permitted.
    

Timing of a Loan

1. No loan may be made to a participant sooner than seven calendar days after the satisfaction or termination of a prior loan (including offset) from the same Supplemental Retirement Plan.
    

Rollovers

1.  A participant is prohibited from rolling over a loan from the participant’s previous employer to the Supplemental Retirement Plans, and the Supplemental Retirement Plans will not accept such loans. 
    
2. A participant is prohibited from rolling over a loan from the Supplemental Retirement Plans to another plan and any attempt to do so will result in a default of the loan. 
    
3. Notwithstanding subsections 1 and 2 above, a participating employer may elect to transfer participants’ loans to the Supplemental Retirement Plans as part of the transfer of participants’ accounts from another plan subject to the approval of the Department and the recordkeeper.
    
4. If a participant rolls over the entire account balance from one Supplemental Retirement Plan to another, then the participant also may roll over any loan in the account.
    

Note and Pledge / Assignment

1. A participant must agree to (a) the terms of the loan as set forth in a promissory note for the loan; and (b) the pledge or assignment of the portion of the participant’s account balance that is used as security for the loan. Negotiation of the loan check by the participant signifies the participant’s acceptance of the loan terms in (a) and the pledge or assignment in (b).
    

Spousal Consent

1. A participant is not required to obtain consent from his or her spouse to take a loan and use a portion of the participant’s account balance as security for the loan amount, regardless of the amount of the participant’s account balance.
    

Loan Fund (Account)

1. All loans are made (i) in cash; (ii) from pre-tax contributions (to the extent sufficient to meet the loan amount); and (iii) on a proportionate basis from all of the participant’s investments.  
    
2. The outstanding loan balance is segregated from the participant’s account balance and held by the recordkeeper in a separate loan fund (or loan account).
    
3. A loan is treated as a separate investment on behalf of the participant.
    

Investment of Repayments

1. Payments of principal and interest on a loan are credited to the participant’s account balance and are invested according to the participant’s investment allocation for current contributions. If the participant is not contributing to the plan at the time of a repayment, then the repayment amount will be invested on a proportionate basis in all of the participant’s investments.
    

Repayments While Employed

1. Loan repayments will begin as soon administratively practicable, but no later than two months, following the issuance of the loan.
    
2. During a participant’s employment with a participating employer in the Supplemental Retirement Plans, the employer will withhold loan repayments from the participant’s pay according to the employer’s payroll schedule and will remit the repayments to the recordkeeper.
    
3. Notwithstanding part (b), a participant remains responsible for making loan repayments directly to the recordkeeper. Direct payments by participants should be made ACH/wire when reasonably possible; when ACH/wire payment is not reasonably possible, participants may send a paper check to the recordkeeper. Loan repayment by ACH/EFT, check, or other method authorized by the Department or the Board is referred to as an “Authorized Repayment Method. If the employer does not, or is unable to, withhold loan repayments from payroll and/or remit loan repayments to the recordkeeper, then to the extent authorized by the Department or the Board and approved by the recordkeeper, a participant may make loan repayments directly to the recordkeeper by an Authorized Repayment Method no less frequently than quarterly on a revised schedule of amount and payment dates calculated by the recordkeeper to repay the loan in full with interest and in substantially equal payments over the remaining original period of the loan.
    

Separation from Employment

1. Repayments. Following separation from employment, a participant may (i) repay the outstanding loan balance in full; or (ii) continue repaying the loan by making repayments directly to the recordkeeper by an Authorized Repayment Method. If the participant elects to continue repaying the loan, then the participant must make regular payments no less frequently than quarterly on a schedule of amount and payment dates calculated to repay the loan in full with interest and in substantially equal payments over the remaining original period of the loan.
    
2. RESERVED
    
3. Special Separation Allowance. If the former employer of a retired law enforcement officer (“LEO”) pays Special Separation Allowance (“SSA”) payments to the LEO through the employer’s payroll, the employer may withhold loan payments from the LEO’s SSA payments unless otherwise notified in writing by the LEO.
    
4. Deemed Distribution and Offset. Following separation from employment, if a participant does not repay the loan as required by this section, then the recordkeeper will report the outstanding balance to the Internal Revenue Service as a distribution for tax purposes, and will offset the outstanding balance, on the sooner of (i) the date on which the participant takes a full distribution of the plan account; or (ii) the occurrence of a deemed distribution (see below).
    

Prepayments

1. A participant may repay a loan in full at any time without penalty. Any amount paid in excess of the scheduled payment will be applied first to interest and then to principal, unless otherwise specified by the participant. Prepayments will not change the amount or timing of subsequent payments due prior to payoff of the loan but will simply reduce the total number of payments to be made, unless otherwise specified by the participant.
    

Suspension of Loan Repayments During a General Leave of Absence

1. A participant with an outstanding loan balance may suspend repayments for up to 12 months for any period during which the participant is on an authorized leave of absence (i) without pay; or (ii) with reduced pay that is less than the required repayment amount. Upon the participant’s return to employment (or at the end of the 12-month period, if earlier), the participant shall resume making repayments on the loan, based on one of the following two alternatives.
   • Payment Alternative #1. The participant may increase the monthly payments to an amount that is sufficient to repay the loan in full, including interest that accrues during the leave of absence, over the remaining term of the loan.
      
   • Payment Alternative #2. The participant may re-amortize the outstanding loan amount, including interest that accrues during the leave of absence, over a period not to exceed five (5) years from the original date of the loan (the “Five-Year Term”); provided that the payment amounts after the suspension period are not less than before the suspension.
      

Suspension of Loan Repayments During Military Service

1. A participant may elect to have loan repayments suspended during a period during which the participant is performing military service (i.e., service in the uniformed services). The payment alternatives in Item 19 apply to such participant, except that:
   • The Five-Year Term may be extended by the amount of time the participant was performing military service; and
      
   • The interest rate may not exceed 6% during the period of military service; provided that the participant provides the recordkeeper with written notice and a copy of his/her military orders no later than 180 days after the date the participant completes such military service.
      

Default and Grace Period

1. If a participant’s loan repayment is not received from the employer or the participant as required by the repayment schedule, the loan will be considered in default, unless payment is made within the grace period.
    
2. The grace period lasts 90 days after the date on which a loan repayment was due; however, the grace period may be extended by the Department to the end of the calendar quarter following the calendar quarter in which the repayment was originally due.
    
3. Interest continues to accrue on the amount of the loan in default until the sooner of (i) the date that the loan is offset; or (ii) the date that loan repayments are made current.
    

Deemed Distributions

1. The recordkeeper will report the outstanding loan balance to the Internal Revenue Service as a deemed distribution upon the occurrence of one of the following:
   1. Failure to make a repayment within the grace period;
       
   2. Failure to repay the loan in full within 90 days of the participant’s death;
       
   3. Any statement or representation by the participant in connection with the loan that is inaccurate or incomplete in any material respect;
       
   4. Failure by the participant to comply with the provisions of the note, this policy, and the plan document, other loan documentation, or applicable law (including the Internal Revenue Code); or
       
   5. Termination of the plan.
       

Offset

1. A loan that has been deemed distributed will be offset when the participant is entitled to an immediate distribution from his/her plan account balance of an amount that is at least equal to the outstanding loan balance.
    
2. For the purpose of an offset, a loan default will be treated as an immediately distributable event to the extent that applicable law (including the Internal Revenue Code) does not prohibit an actual distribution of the type of contributions that would be offset.
    
3. Prior to the offset of a defaulted loan, the participant may repay the outstanding loan balance (including accrued interest through the date of repayment), even if the loan has been deemed distributed and reported to the Internal Revenue Service.
    
4. The amount of a loan that is offset is reported to the Internal Revenue Service as a distribution only to the extent that such amount was not reported previously.
    
5. The amount of a loan that is offset does not include the interest that accrues following a deemed distribution.
    

CARES Act Provisions

1. This section applies to the extent permitted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (Public Law 116-136).
   • CRD-eligible participant. A “CRD-eligible participant” is a participant who qualifies for a “coronavirus-related distribution” pursuant to Section 2202(a)(4)(A)(ii) of the CARES Act.
      
   • Increased loan maximum. From March 27, 2020, through September 22, 2020, the maximum loan amount for a CRD-eligible participant is the lesser of $100,000 or 100% of the participant’s account balance.
      
   • Second loan. From March 27, 2020, through September 22, 2020, a CRD-eligible participant is permitted to take a second loan from each plan.
      
   • Loan deferral. If a CRD-eligible participant has an outstanding loan repayment due in the period from March 27, 2020, through December 31, 2020, the participant can defer this repayment through the end of 2020 and restart repayment in January 2021. The term of the loan shall be extended as follows:
     • For deferral requests through July 5, 2020, the term shall be extended to account for the number of pay periods in 2020 for which payments were deferred; and
     • For deferral requests from July 6, 2020, through December 31, 2020, the term shall be extended for 12 months from the end of the current term.
        
   • However, interest continues to accrue during the deferral period. Following the deferral period, the recordkeeper shall re-amortize the loan such that the loan shall be repaid with interest in full in substantially equal payments over the remaining term of the loan.

Limited Second Loan for NC 457 Plan

1. From April 17, 2009, through April 22, 2019, a participant was permitted to take a second loan from the NC 457 Plan if such participant defaulted on the first loan and the loan was offset in error when the participant turned 59½ instead of 70½.

Revision History and Effective Dates