Loan payments--people get paid bi-weekly, send monthly contribs

[Brian Gallagher]

The DOL's instructions to send in loan payments timely notwithstanding, we are having a split decision here on how a loan should be set up on the recordkeeping system. Should the loans be set up bi-weekly--as the money is taken out of the pay check? Or monthly, how it's remitted?

[Guest jmarini]

I would set them up by-weekly then continue to work with the client on getting the payments submitted bi-weekly instead of monthly.

[FundeK]

I agree. It should definitely be set up as bi-weekly. Especially if the loan policy states that payments are to be made via payroll deduction. Also, if the recordkeeping system was set up as monthly(24 pmts), and payroll is deducted bi-weekly(26 pmts), you are going to have some months that they submit 3 payments, which won't match the amortization schedule and throw the loan off (paid off early). This causes a number of problems if you don't allow partial payments.

[E as in ERISA]

Are you asking whether the amortization schedules should assume bi-monthly or monthly payments? I.e., whether interest should accrue monthly or bi-monthly? If the payments are withheld bi-monthly, then I believe that is how the interest should be calculated.