NRECA Employee Benefits Weekly

401(k) Plan Loan Interest Rate Rises

Posted on Posted in Retirement Benefits

On December 13, 2017, the Federal Reserve raised its benchmark interest rate by .25%. In response, U.S. banks are increasing the prime interest rate to 4.5%.  Effective January 1, 2018, the NRECA-sponsored 401(k) Pension Plan’s loan interest rate, which is set at 1% more than the nation’s prime interest rate, is 5.5%.

Things you and your employees should consider about loans
If your cooperative offers a 401(k) Plan loan option, your employees are 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 advantages as well as the disadvantages of these loans.

Advantages:

  • No credit check;
  • Competitive interest rate;
  • Automatic payroll deduction for repayments;
  • Loans can be taken for any reason;
  • The loan process is easy and convenient.

Disadvantages:

  • Funds taken out of a 401(k) Plan account for a loan are no longer invested, which means participants can lose out on potential investment growth;
  • Loans are repaid with after-tax dollars
  • If participants stop contributing to the 401(k) Plan due to the demands of making a loan repayment, your co-op’s matching contributions (if part of the plan) also will stop;
  • Interest on 401(k) Plan loans isn’t tax deductible;
  • Terminated participants must repay loans within 90 days or pay taxes and possibly penalties on the outstanding balance.

When considering a loan, participants should be encouraged to seek guidance from their personal 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.

Model and request loans online
To view the loan interest rate or request a loan, participants can log in to the Employee Benefits website at cooperative.com > My Benefits > My Retirement. Under the heading “My 401(k)”, click on Loans. Select Model & Request a Loan.

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

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