401(k) Loan Fees-Union Plan

[KIP KRAUS]

We have 401(k) Plan that allows us to establish and administer a loan program within the plan. Currently the Company pays loan anitiation fees and annual loan maintenance fees. Even though the Company has always paid these fees, they have always been slient in the bargaining agreement.

If the Comapny decides to start requiring union employees to pay for futuer loan anitiation and annula fees, is this change in policy a nogotiable item, or can the Company just make the change?

Any labor specialists out there, or someone who has experienced something similar? Any suggestions will be appreciated.

[Guest Pat Rye]

I don't know about the union issues but in case you aren't aware, take care on charging annual loan fees to the participants. I believe that such annual fees (but not the loan initiation fees) if charged to participants, have to be included in the interest. Therefore, the interest rate on the loan is increased and may exceed maximun interest rates - particularly on smaller loans.

[david shipp]

does anyone have a formula or method of adding annual loan fees into APR?

[LCARUSI]

Clearly, an annual maintenance fee must be disclosed to the participant. However, it is not clear to me that it should be treated as additional interest on the loan and disclosed as additional interest. (I do not work with any plans which have loan fees, so I haven't given this issue much thought.)

I am looking into this. If anyone has dealt with this issue, their input would be appreciated.

[LCARUSI]

I have spoken to a knowledeable representative at a major mutual company (which is also a major player in the 401(k)business).

I was told they do not reflect any expenses (setup or annual) in the disclosure of interest to the participant. There is a separate section on the disclosure statement which discusses fees.

Thus if the participant is taking an x% loan with an annual maintenance fee, the disclosure statement to the participant says the interest rate is x% AND there is also an annual maintenance fee.