Ind. Admin. Code tit. 35, r. 1.2-6-7 – Legislators' defined contribution plan loans

Sec. 7. (a) Any participant in the legislators' defined contribution plan (LEDC) may apply on the applicable form to the fund for a loan from the legislators' defined contribution plan pursuant to this rule and such other procedures as may be established by the fund. Such loans will be available to all such participants on a uniform and nondiscriminatory basis. All loans are subject to the approval of the fund or its designee.

(b) The maximum amount of such loan, when added to the outstanding balance of all other loans from the fund, shall not exceed the lesser of:

(1) fifty thousand dollars ($50,000), reduced by the excess, if any, of the highest outstanding balance of loans from the fund during the one (1) year period ending on the day before the date on which the loan is made, over the outstanding balance of loans from the fund on the date on which such loan is made; or
(2) one-half (1/2) of the employee's accounts within the defined contribution plan of the participant under the fund.

(d) The loan program described in this rule shall be administered by the fund or its designee. All loans shall comply with the following terms and conditions:

(1) All loans shall be subject to applicable Internal Revenue Service regulations and restrictions.
(2) A participant may apply for a loan by completing the applicable forms.
(3) Each loan shall be amortized on a substantially level basis with monthly payments. Payments shall be made no later than the last day of a month for that month. The period of repayment shall be a minimum of twelve (12) months and shall not exceed five (5) years from the loan origination date. Notwithstanding the preceding sentence, the term of the loan shall not extend beyond the earlier of:
1. (A) in the case of a distribution that begins after the date of the loan to the extent that such distribution completely offsets the balance of the loan, the date such distribution of the employee's accounts within the defined contribution plan of the participant under the fund begins; or
2. (B) the date of a default on the loan.

(e) The participant receiving the loan shall make the required repayments in accordance with the loan agreement. Payments will be made in a form and manner as prescribed by INPRS. If the participant fails to make a timely loan repayment, the participant may make up any missed repayments before the end of cure period described in subsection (g)(1). INPRS or its designee must receive the payment on or before the last day of the cure period.

(f) The rate of interest shall be the prime rate per annum, as published in The Wall Street Journal on the first day of the quarter (or the earliest publication day of the quarter in the event of a publication holiday) in which a completed loan application is submitted, plus one percent (1%). A loan will carry the same interest rate throughout its term.

(g) The fund shall declare a default on a loan as of:

(1) the last day of the calendar quarter following the calendar quarter in which the participant fails to make a payment, unless the participant pays the amount due plus accrued interest and makes the loan account current with no other outstanding late payments owed prior to such date; or
(2) the date thirty (30) days after the fund in good faith deems the plan insecure with respect to the repayment of the loan and notifies the participant of this deemed insecurity.

(h) On default, the entire amount outstanding on the participant's loan will be due and payable.

(i) On default, the fund shall report to the Internal Revenue Service the outstanding loan balance (principal and interest) as a taxable distribution to the participant, which may also be subject to an additional ten percent (10%) excise tax under the Internal Revenue Code.

(j) A defaulted loan will continue to accrue interest until the loan amount has been repaid even in the event of a deemed distribution. A loan that is deemed distributed continues to accrue interest until it is repaid. The outstanding loan balance is considered only when determining the maximum loan amount available under Internal Revenue Code Section 72(p)(2)(A). Interest accruing on the loan after it is deemed distributed is not required to be repaid.

(k) Each loan shall be adequately secured. The plan shall have a security interest in the employee's accounts within the defined contribution plan of the participant under the fund.

(l) Any loan to a participant shall be considered to be a separate asset of the legislators' defined contribution plan segregated for the benefit of such participant. The interest paid on the loan shall be credited to the employee's accounts within the defined contribution plan of the participant. Such portion of the employee's accounts within the defined contribution plan on loan to the participant shall not share in the allocation of gains or losses. The principal and interest paid on the loan shall be credited to such employee's accounts within the defined contribution plan as determined by the fund.

(m) A participant may not take out any additional loans while the participant has a loan in default.

(n) A participant may not take more than two (2) loans in any calendar year.

(o) A participant may have any number of loans outstanding as long as all of the requirements of this rule are met.

(p) Any loan processing fee charged by a third party will be paid by the participant from the employee's accounts within the defined contribution plan of the participant.

(q) The loan proceeds will come from the employee's accounts within the defined contribution plan of the participant on a pro rata basis, and from the directed investment options of the participant on a pro rata basis.

(r) A member who terminates service covered by the LEDC with an outstanding loan shall repay the loan according to the terms and conditions of the loan agreement, except that any distribution occurring by such termination will first be used to offset the remaining balance of the loan.

(s) The participant may prepay, without penalty, the entire (or any part of the) outstanding principal balance of the loan and accrued interest to date of repayment. Prepayments will be made in a form and manner as prescribed by INPRS. No reamortization will apply.

(Board of Trustees of the Indiana Public Retirement System; 35 IAC 1.2-6-7; filed Dec 18, 2001, 9:09 a.m.: 25 IR 1488; adopted Nov 9, 2007: 20071205-IR-035070818ONA; adopted Sep 16, 2011: 20110928-IR-035110563ONA; adopted Nov 4, 2016: 20161116-IR-035160500ONA; adopted Feb 23, 2018: 20180307-IR-035180117ONA; adopted Dec 13, 2019: 20191225-IR-035190683ONA)