Can I borrow from my cash balance plan?

Yes, you can. But there are a few considerations before you proceed. You can borrow the lesser of 50% of the vested employee account balance or $50,000. It is the lower of these two amounts. Again, the maximum loan balance is calculated based on the employee’s hypothetical account balance and NOT the entire balance in the cash balance plan investment account.

Cash balance plans are established with three-year vesting. So you cannot borrow from the plan in the first three years unless we provide a plan amendment to allow immediate employee vesting. 

Since we do not manage your plan investments, make sure you check with your investment custodian first to confirm that they can process and fund the loan request. In addition, they will need to be able to receive the loan payments.

There are also administrative fees as follows:

Plan Amendment – $250

Loan Document – $150

Amortization Schedule – $150

Total Setup Cost = $550

In addition to the above costs, loan balances must be reported annually on IRS Form 5500, and the end-of-year loan balance is included in the actuarial valuation. The additional reporting will add $150 to the annual administration fee beginning next year, and for each year the loan is outstanding.

Loan payments must include both principal and interest and must be repaid monthly or quarterly with a term of five years. As the plan’s trustee, you will be responsible to track and monitor compliance and report to us any taxable events.

Because of the above costs and the compliance issues, we advise clients to make sure this is something they really want to do. In most situations, there are easier ways to raise necessary funds. Once we process the loan paperwork, we cannot offer a refund on our administrative fees.

Please let us know if you want to proceed and we can send you over an invoice for the above fees and get started on the process.