Department of Human Resources: Fifth Amendment to Employees’ Retirement Savings Plan Loan Provisions

Department of Human Resources

Background

Under the current Plan, participant loans may only be approved by the plan administrator if deemed necessary to meet an “immediate and heavy financial hardship.” The plan defines this as hardship caused by one of four specific circumstances: 1. Medical expenses for the participant, spouse or dependents; 2. Costs related to the purchase of a principal residence (excluding mortgage payments); 3. Tuition, educational fees and room/board expenses for up to 12 months of post-secondary education for the participant, spouse, or dependents; 4. Prevention of eviction or foreclosure from the participant’s principal residence. This structure limits flexibility for participants who may face other financial hardships that are equally significant but not covered under the four enumerated categories.The fifth amendment proposes to remove these restrictions and allow loans for any personal financial reason, consistent with IRS rules, while maintaining the plan’s existing IRS loan limits,repayment terms and safeguards.

Discussion

Adopting this amendment would provide participants with greater autonomy to manage their financial needs. Instead of requiring participants to demonstrate one of the four hardship categories, they would be permitted to request a loan for a broader range of financial circumstances, provided the request remains compliant with Internal Revenue Code requirements. This structure limits flexibility for participants who may face other financial needs that are equally significant but not covered under the four enumerated categories. All other provisions of the Plan regarding minimum/maximum loan amounts, repayment schedules, security, and default would remain unchanged.

Coordination

Department of Finance & Budget

Extracted from the source document (public record).