NRECA Employee Benefits Weekly

401(k) Plan Loan Interest Rate Rises  

Posted on Posted in Retirement Benefits

In December, the Federal Reserve raised its benchmark interest rate by .25%, increasing the prime interest rate to 3.75%.  Effective January 1, 2017, the 401(k) Pension Plan’s loan interest rate, which is set at 1% more than the nation’s prime interest rate, is 4.75%.

Things you and your employees should consider about loans
If your cooperative offers a 401(k) Plan loan option, your employees are generally eligible to take loans. You should encourage them to contact you for details on your co-op’s loan program. It’s important that participants seeking loans from their 401(k) Plan accounts understand the cons as well as the pros of these loans.

Cons:

  • Repayments can only be made with after-tax dollars;
  • If you stop contributing to your 401(k) Plan due to the demands of making a loan repayment, your employer’s matching contributions (if part of the plan) also will stop;
  • If you leave your job, you must repay your loan within 90 days or face taxes and possible penalties;
  • Interest on 401(k) Plan loans isn’t tax deductible.

Pros:

  • No credit check;
  • Competitive interest rate;
  • Automatic payroll deduction for repayments;
  • Loans can be taken for any reason.

When considering a loan, participants should seek guidance from a financial or tax advisor. They also can contact NRECA’s Personal Investment & Retirement Consulting (PIRC) team at 866.673.2299, option 6, or at pirc@nreca.coop.

Modeling loans online
To view the rate and request a loan, participants can log in to the Employee Benefits website and go to My Retirement > My 401(k) > Loans and click on Model & Request a New Loan.

For questions, contact the Member Contact Center at 866.673.2299 or contactcenter@nreca.coop.

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