RPF M4 U2 Calculating the Loan Amount and Refinancing

Question 1

What does an employee need to submit for a loan?

Answer 1

Employees submits a loan application.

Question 2

Who processes loan applications for Jonathan’s plan?

Answer 2

Plan Administrative Services (PAS) processes loan applications.

Question 3

What limits does the law place on the borrowed amount?

Answer 3

The law limits the maximum amount a participant may borrow to the lesser of:

• 50% of the participant’s vested account balance; or
• $50,000 (minus the difference between the highest outstanding loan balance of the previous 12 months and the outstanding loan balance).

Question 4

What limits does the plan place on the borrowed amount?

Answer 4

A plan may further limit the maximum by making it less than the regulatory maximums.

Question 5

How is the maximum amount a participant may borrow calculated?

Answer 5

The maximum amount is calculated by considering the vested account balance and any existing loans.

Question 6

What sources of contributions are considered in the loan calculation?

Answer 6

Sources include employee contributions, rollover contributions, and vested employer contributions.

Question 7

What impact do existing loans have on a second or third loan?

Answer 7

Existing loans complicate the calculation of the maximum available loan amount.

Question 8

What is the first step to calculate the maximum available loan amount with no previous loans?

Answer 8

Calculate 50% of the total vested account balance.

Question 9

What is the second step to calculate the maximum available loan amount with no previous loans?

Answer 9

Determine the lesser of step 1 and $50,000.

Question 10

What is the maximum loan amount for Brenda with a vested account balance of $15,000?

Answer 10

$7,500.

Question 11

What is the first step to calculate the maximum available loan amount with previous loans?

Answer 11

Calculate 50% of the total vested account balance.

Question 12

What is the second step to determine the $50,000 limit with previous loans?

Answer 12

$50,000 - (12 Month Highest Loan Balance - Current Outstanding Loan Balance).

Question 13

What is the maximum loan amount for Amahl?

Answer 13

$43,000.

Question 14

What is the remaining amount available for Amahl’s second loan?

Answer 14

$38,000.

Question 15

What is the minimum amount a plan may specify for initiating a loan?

Answer 15

Often $1,000.

Question 16

What does SECURE 2.0 allow regarding the loan limit?

Answer 16

It allows the $50,000 limit to be increased to $100,000 for participants in federally declared disaster areas.

Question 17

What is the calculation for Charlene’s maximum loan?

Answer 17

$10,000.

Question 18

What is the calculation for Devon’s maximum loan?

Answer 18

$7,500.

Question 19

What is the calculation for Enrique’s maximum loan?

Answer 19

$17,500.

Question 20

What is the withdrawal hierarchy for Francesca’s loan?

Answer 20

Loan proceeds will first be withdrawn from the rollover source, then the salary deferral source, and then the employer match source.

Question 21

What is loan refinancing?

Answer 21

Loan refinancing is the replacement of an existing loan with a new loan.

Question 22

What options may a plan allow for loan refinancing?

Answer 22

Options may include an interest rate change, a change in loan term, or a request for additional funds.

Question 23

What happens when a participant refinances to change the interest rate?

Answer 23

The amount of the periodic payment is re-amortized to account for the change in interest rate.

Question 24

What can a participant do when requesting additional funds during refinancing?

Answer 24

The participant can request the maximum amount available or a specific dollar amount not to exceed the maximum.

Question 25

How is the available amount to add to a refinanced loan calculated?

Answer 25

It is calculated by the same method used to determine the available amount for a new loan.

Question 26

What must Sonja check regarding Jaylene's loan request?

Answer 26

Sonja must check the loan program and details about Jaylene's account.

Question 27

What is the maximum amount Jaylene may borrow?

Answer 27

$8,500.

Question 28

What limits does the law place on the borrowed amount?

Answer 28

The law limits the maximum amount a participant may borrow to the lesser of: - 50% of the participant’s vested account balance; or - $50,000 (minus the difference between the highest outstanding loan balance of the previous 12 months and the outstanding loan balance)

Question 29

What limits does the plan place on the borrowed amount?

Answer 29

A plan may further limit the maximum by making it less than the amount allowed by law. The plan may also place a minimum amount.

Question 30

How is the maximum amount a participant may borrow calculated?

Answer 30

1. Calculate 50% of the total vested account balance. 2. Determine the $50,000 limit. 3. Determine the lesser of 1 and 2. 4. Subtract the outstanding loan balance.

Question 31

What sources of contributions are considered in the loan calculation?

Answer 31

Allowable sources depend on the plan, but may include (or exclude) salary deferrals, rollovers, employer match, and employer profit sharing. The loan program may allow for all sources to be part of the calculation and distributable amount; it may restrict certain sources from calculation and distribution; or it may allow for some sources to be used in calculation but excluded from being used for distribution.

Question 32

What impact do existing loans have on a second or third loan?

Answer 32

If the plan allows for more than one loan, the $50,000 limit is reduced by the amount of repaid principal over the preceding 12 months.