Participant Loan

[MarZDoates]

Plan loan program permits the fees associated with loan application and maintenance to be charged to the participant's account. Shouldn't the fee come directly out of the account as a "fee"/"expense" rather than including it in the loan principal?

Example: participant requests $12,000 loan. Custodian charges $150 fee. Net check to participant is $11,850. Shouldn't $11,850 be the amount amortized?

Or can it be done either way? Thanks.

[JanetM]

We do it they way you described, the loan fee coming off the top and being amortized. I have seen it done both ways. Years back when I was on TPA side, the loan fee was paid from the account not the loan proceeds.

[rcline46]

Adding the fee to the loan allows the participant to 'recoup' the loan fee. Taking it from the account is a direct and unrecoverable expense. I have never had a DOL or IRS auditor challenge taking it from the loan proceeds. Also, the loan paperwork discloses it is taken from the loan.

[MarZDoates]

Adding the fee to the loan allows the participant to 'recoup' the loan fee. Taking it from the account is a direct and unrecoverable expense.

Oooo! I hadn't thought of that. Good point.