First, there's the philosophical problem of allowing people to take money out of accounts that are designed to be nest eggs for their golden years. Having a loan option simply reinforces this illusion. Second, administering the loan can get complicated because there are IRS regulations to contend with and plenty of other decisions that plan trustees need to make. The employee takes the money and you wave goodbye. Pa. So here's what you need to know.
Employees can only borrow from vested money.
If an employee has another loan outstanding, that is subtracted from the maximum amount that can be borrowed. Employees must make at least quarterly payments on the loan, and pay it back over no more than five years. The exception is if the loan is used to purchase a primary residence-then it's up to the plan to decide on a time limit. According to the PSCA survey, most employers base their interest rate on the prime rate plus a point or two. There are plenty of other design questions that the IRS does not help you answer.