This video is the final installment in our four-part series on Plan Design, focusing on how to create a well-structured loan policy within your retirement plan.
Retirement plan loans are intended as a last resort for emergencies, but participants often use them for everyday expenses. This can create risks for both participants and plan administrators. Establishing clear guidelines in your loan policy can mitigate these risks and protect participants from potential financial strain.
Consider these best practices for loan policies:
- Limit participants to one outstanding loan at a time.
- Add a waiting period, such as 30 or 60 days, between loans.
- Remove refinancing provisions to discourage unnecessary borrowing.
Effective loan management also involves ensuring payroll deductions are accurate and timely. Some recordkeepers offer tools like payroll integration, linking bank accounts for continued payments after termination, or adding a payroll feed between the recordkeeper and payroll provider to simplify operations and reduce errors.
Need help evaluating your loan policy or refining your plan design? Our team is here to support you.
Curious about the full list of eight considerations for effective plan design? Click here to download the PDF.
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