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AHRP Home Page > AHRP Loan
Feature
AHRP Loan Feature
A loan feature was added to the AHRP beginning July 1,
2002. The questions and answers below contain a general
overview of this loan feature. If you would like additional detailed information
or if you would like to arrange for a loan, visit
Your Account.
The loan provision is designed as a paperless process
in which the Participant interacts directly with the AHRP recordkeeper in making
loan arrangements. No involvement by the employer is necessary.
Any AHRP Participant with a vested balance may take a loan.
This includes anyone with a TSA balance since TSA balances are always 100%
vested. Loans will be available for active as well as inactive Participants.
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You may borrow up to 50% of your vested balance, not to exceed
$50,000.
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There are two types of loans available: General
Purpose Loans which have a repayment term of 1 to 60 months, and Primary
Residence Loans, which have a repayment term of 61 to 180 months. The
Participant determines the repayment period. (Interest expense is not tax
deductible on AHRP loans, even for a Primary Residence Loan.)
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 The interest rate used for the loan will be the yield of
the AHRP Capital Preservation Account at the time the loan is initiated.
This rate is 5.20% for 2008.
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There is a loan initiation fee of $50 for General Purpose
Loans and $75 for Primary Residence Loans. This fee, along with the
amount borrowed, will be taken from you AHRP balance. Tax laws require the
repayment of both the loan fees and loan balance to your AHRP account. (i.e. a
$2,000 General Purpose loan will require a repayment of $2,050 in principle.)
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You may have up to two AHRP loans outstanding at any
time.
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Repayment will be made by monthly electronic debit to your
checking or savings account. At the time you arrange for your loan, you will
provide your account number and bank routing number (located on the bottom of
your check). A loan payment will be taken from your checking or savings account
on the 25th of each month following the month in which you take your
loan.
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The easiest way to arrange for a loan is online through
Your Account. You may also
arrange for a loan by contacting the AHRP Retirement Center at (800) 730-2477.
In either case you will be asked to provide your Social Security number and
Password to access your account. Just follow the prompts to arrange for a loan.
On the Web site, you will be able to model varying loan amounts and repayment
periods to determine the terms that fit your needs. All information required to
initiate a loan can easily be completed. If you use the "800" number, you will
be connected to a Retirement Center Representative who will help you with your
loan arrangements.
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You may arrange to repay your loan in its entirety at
any time without penalty. This can be arranged through
Your Account on this website or
by calling 800-730-2477.
However, we are not able to process accelerated payments as a means of repaying
loans early. Once your loan repayment schedule is established, it must be
followed or arrangements must be made to repay the entire outstanding loan
balance.
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Your loan payments will continue to be taken from your
checking or savings account even after you terminate employment.
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Borrowing from your retirement account carries risks and may
not be your best alternative for borrowing:
- The amount you borrow from your retirement plan diminishes
the balance that could be compounding in your retirement account at a higher
rate of return than what the AHRP Capital Preservation rate yields. Because
Plan earnings compound over time tax free, a small loss in earnings could
translate to a big loss over time.
- A default of more than three months on loan
payments (perhaps resulting from loss of employment) will result in the
entire outstanding loan balance being considered a distribution from the Plan.
Since funds distributed from the Plan are taxable in the year of
distribution, taxes and (for Participants under age 59 ½) penalties will
apply. Consequently, a default will result in worsening financial
problems.
- If a default occurs, resulting in a distribution
from the Plan, the tax deferred status of the distributed funds is lost,
permanently diminishing the Participant's tax deferred account.
- Loans are usually preferable to hardship withdrawals.
While the withdrawal permanently decreases your account, the loan is
expected to be repaid - thereby restoring the tax deferred retirement
account.
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