This article is here to provide you with answers to common questions regarding loans:
- Does My Plan Allow Loans?
- How Do I Know Which Employees Have Loans?
- What Are My Responsibilities When It Comes to Loans on My Plan?
- What Happens to an Employee’s Loan After They Leave Employment?
- Can My Employee Pay Off Their Loan Early?
- Can I Pay Off My Employee’s Loan for Them?
- How Can I Rectify Missed Loan Repayments?
- What Resources Do You Have Available to My Employees Who Have Loans?
Does My Plan Allow Loans?
To check if your plan allows loans, review your Plan Adoption Agreement. This can be found in the “My Plan Basics” section of your employer portal.
If your plan does allow loans, navigate to the “My Plan” page by selecting the document icon on the left hand side of your screen. Then, click Documents. Within the “Plan Documents” section, you will find a “Loan Procedures” document. Click on the PDF button to view.
Learn more about loans here.
How Do I Know Which Employees Have Loans?
When an employee takes out a loan, you will receive the following email notifications from the Vestwell platform notifying you of the change.
- Loan Request Approved - This email notifies an employer when a loan is first approved and taken out.
- Missed Loan Payment - This email is sent when an employee misses a payment on their loan.
- Loan Default - This email is sent once an employee’s loan has defaulted.
To view loans in the Vestwell employer portal, follow these steps:
- Log in to the Vestwell employer portal.
- Navigate to the “Employees” tab.
- Search for an individual employee with a loan.
- On the “Individual Employee” overview, navigate to the “Loans” tab.
- Click on the blue hyperlink on the dollar amount and select the Download payment schedule button to download a copy of the loan amortization schedule.
What Are My Responsibilities When It Comes to Loans on My Plan?
Employers are responsible for setting up loan repayment codes in their payroll systems. This is still applicable to employers that have integrated their payroll provider with Vestwell. You must verify that deductions are withheld from employee compensation and contributed to Vestwell.
To learn how to access and download the loan’s amortization schedule, please visit our article here.
To learn more about your specific requirements as an employer with a payroll integration, please locate your payroll provider here and review the corresponding information.
What Happens to an Employee’s Loan After They Leave Employment?
Employers may require employees to repay the total outstanding balance of a loan if they terminate employment. Please see your specific plan’s “Loan Procedures” document for further details regarding repayment upon termination.
If the terminated employee fails to repay their loan in full, the loan will be considered “in default.” This means that their outstanding loan balance will be treated as a retirement plan distribution and will be reported to the IRS on a Form 1099-R. A 1099-R will then be issued to the former employee, and applicable taxes and penalties will apply.
A terminated employee has a limited time to repay the loan before it becomes a taxable distribution. The loan will become a taxable distribution and cannot be repaid at the earlier of the following two situations:
- By the end of the “Cure Period.” The Cure Period is the last day of the calendar quarter following the calendar quarter in which the terminated employee missed their first loan repayment. For example, if they missed their June payment, their loan would become a taxable distribution at the end of September.
- The employee initiates a “Termination of Employment Distribution.” This occurs when an employee accesses their account after leaving the company and transfers the funds out of the retirement plan, either by cashing them out or rolling them over into another account.
If your employees are seeking additional information about loan repayment upon termination, you may encourage them to review this article.
Can My Employee Pay Off Their Loan Early?
Loan repayments can only be made through either payroll deductions or a lump sum repayment. Lump sum repayments can be made directly through the saver portal. Employees can contact Vestwell’s Saver Services at help@vestwell.com for assistance.
Can I Pay Off My Employee’s Loan for Them?
No, loan repayments must come directly from the employee via payroll deductions.
How Can I Rectify Missed Loan Repayments?
If a repayment is missed, your employees can double or triple the deduction to catch up, but payments must be multiples of the regular amount (e.g., $100 or $150 if the regular payment is $50).
The Cure Period provides employees with a grace period to resolve missed payments before the loan is defaulted.
What Resources Do You Have Available to My Employees Who Have Loans?
If your employees have questions about loans or are seeking more information about loans, you can encourage them to review the following resources: