Loan provisions

[Belgarath]

Just curious - how many of your plans permit loan repayments to continue following termination of employment? Almost none of ours do, on the theory that the employer doesn't want to mess with loan issues for ex-employees. However, I've seen some TPA's that have almost all of their plans allow repayments to continue after termination of employment.

So, this is an unimportant question, just to satisfy my curiosity. I think our approach is more mainstream, but maybe not...

[RatherBeGolfing]

None, for the very reason you listed. 

 

[Belgarath]

Thanks. Cynical types report that there are some TPA's out there (none of them BL members, naturally!) that use every stratagem possible to keep participant and loan counts high so that they can collect more fees...

[ESOP Guy]

Back when I worked 401(k) plans (2009 and earlier) I saw it but it was very, very rare.  It tended to be companies that just treated their employees very well and valued their alumni relationships.  In fact the one company that stands out in my mind is a company where their alumni often times left to become management in other companies and they often times tried and use that connect to win business.  So they felt it was important to cater to alumni. 

But easily 99.99% of all 401(k)s didn't allow it where I worked.  In fact the standard promissory note we offered our clients was written such that payroll deductions was the only allowed method of loan payments.  No one wanted to bother with an employee sending in a check. 

That was the real issue.  No one wanted to have to handle and track checks coming in and making sure they got deposited timely.  What happens if the check bounces?  What happens if your system says the check came in and the check isn't deposited? 

[Kevin C]

We only have a couple of plans that allow loan payments to continue after termination of employment. One main reason is, as ESOP mentions, no one wants to deal with the checks. We also had one client that used to allow it, but changed their loan policy after a group of employees took $50,000 loans and used the funds to start a company to compete against them.  

[RatherBeGolfing]

40 minutes ago, Belgarath said:

Thanks. Cynical types report that there are some TPA's out there (none of them BL members, naturally!) that use every stratagem possible to keep participant and loan counts high so that they can collect more fees...

Yep, plenty of those type of TPA's out there.  I am the polar opposite, I want every terminated employee out of my plans because I don't want to retain the liability (or client's liability).  Every terminee that stays in the plan is one more opportunity to miss a notice, disclosure, have an improper investment alternative, etc.  But then again I come from the "how do I have the least exposure" side rather than the "how do I squeeze every last cent out of plan" side.  Maybe that is why I drive a Hyundai and not a corvette 

[K2retire]

15 minutes ago, RatherBeGolfing said:

Yep, plenty of those type of TPA's out there.  I am the polar opposite, I want every terminated employee out of my plans because I don't want to retain the liability (or client's liability).  Every terminee that stays in the plan is one more opportunity to miss a notice, disclosure, have an improper investment alternative, etc.  But then again I come from the "how do I have the least exposure" side rather than the "how do I squeeze every last cent out of plan" side.  Maybe that is why I drive a Hyundai and not a corvette 

I agree with all of the above (including driving a Hyundai ) and the reasons for it. But in light of all of the media concerns about stopping plan leakage, I'm curious to see how this evolves -- or if it does.