RS 5025-A (Rev. 2/15) Page 4 of 4
ALL TIER 3, 4, 5 AND 6 LOANS ARE SUBJECT TO THE FOLLOWING:
You must be in active service with the State or a participating employer
and have credit for at least one year of member service. Members on
a leave of absence are not considered to be in active service. If you
are retiring, your loan application must be received before your date of
retirement for it to be processed.
Only one loan may be granted in a 12-month period.
A loan may not be granted for less than $1,000. If your current
contribution balance, including interest, does not total at least $1,334,
you are not eligible for a loan.
The maximum loan permitted under law is 75 percent of the amount
you have on deposit in your contribution account, less any outstanding
loan balance. If the requested loan amount exceeds the legal limit, your
application will be processed for the maximum amount permitted.
The minimum repayments must be in an amount sufcient to repay
the loan within ve years and be at least 2 percent of salary. Loan
repayments are in even dollar amounts and must be paid through
payroll deductions. If you leave the payroll, or you are on an authorized
leave of absence, please call us for information on repaying your
loan. If you do not make payments on your loan quarterly or complete
payment within ve years of the date the loan is issued, whichever
comes rst, your loan will be in default. At the time a default occurs, the
entire amount due on your loan, minus any previously taxed portion,
must be reported to the Internal Revenue Service (IRS) as a lump sum
distribution from a qualied plan. However, the balance on a defaulted
loan is still owed, and interest and insurance charges continue
to accrue until the balance is paid in full. If any of your loans are in
default, you will be unable to borrow from us in the future until the entire
balance on all loans in default has been repaid. If you are called to
active military duty, special rules apply. Please contact our Call Center.
All loans are subject to a service charge which will be deducted from
the loan at the time it is issued. As of the date of printing, the service
charge is $20.00. To conrm the current service charge, please call us.
Do not send a check or money order to cover the service charge.
WARNING! If you retire or withdraw from the Retirement System and
have an outstanding loan on the effective date of your retirement or
withdrawal, part or all of the loan balance may constitute taxable funds
which were credited to your account and, therefore, would be subject
to Federal income tax in the year in which you retire or withdraw.
Since this income would not be reportable until you retire or withdraw,
information regarding the amount will be furnished to you at that time.
The current loan interest rate is 6.5 percent. To conrm the current
rate at any time, please call us. The interest rate will remain xed for
the term of your loan. Interest charges are based on the outstanding
balance at the beginning of each month.
Loans are fully insured against the death of a member prior to
retirement. There is no insurance for the rst 30 days. Premiums
to cover the cost of this insurance are based on the amount of the
loan and your age, and are built into the repayment schedule. Loan
insurance does not cover you if you become disabled or unemployed.
IMPORTANT BENEFIT INFORMATION
If you have an outstanding loan balance at the time of your retirement, your benet will be permanently reduced. The following table shows the
approximate annual reduction in benets for each $1,000 of loan outstanding at retirement if you retire at various ages:
EMPLOYEES’ RETIREMENT SYSTEM
Age at Retirement
Annual Reduction ($)
POLICE & FIRE RETIREMENT SYSTEM
Age at Retirement
Annual Reduction ($)
IMPORTANT FEDERAL TAX INFORMATION
Existing loans with a deferred compensation or tax sheltered annuity plan: If you have an existing loan from one of these plans, both the current
loan balance and the current contribution balance will be taken into account when calculating the taxability of the loan from this system.
1. Loans over $50,000:
No outstanding loan when new loan granted: Loans that exceed $50,000 must be reported to the IRS as a distribution from a qualied plan to the
extent that the loan exceeds $50,000, less the highest outstanding loan balance in the past 12 months.
Renanced Loan: Renanced loans that cause the outstanding loan balance at the time the new loan is granted (old balance) when added to the
replacement loan (old balance plus the new loan amount) to exceed $50,000, less the difference between the highest total outstanding balance
during the past year and the ‘old balance,’ must be reported to the IRS as a distribution from a qualied plan to the extent that the loan exceeds this
: Loans that cause the loan account (total of all outstanding loans plus the new loan) to exceed $50,000, less the difference between
the highest total outstanding balance during the past year and the total old balance (total of all outstanding loans prior to new loan), must be reported
to the IRS as a distribution from a qualied plan to the extent that the loan account exceeds this amount.
Any portion of the distribution amount that cannot be offset by your after-tax contribution will be reported to the IRS as ordinary income.
2. Loans under $50,000:
If there is no outstanding loan or a separate multiple loan is granted, and the new loan results in the total ‘outstanding balance’ being more than
the greater of (a) $10,000 or (b) 50 percent of the present value of your accrued non-forfeitable benet, the amount over that gure will be reported
to the IRS as ordinary income for the current year. If you are not vested, the present value of your accrued non-forfeitable benet is equal to your
contribution balance. If you are vested, the present value of your accrued non-forfeitable benet is an actuarially determined amount. For renanced
loans, the ‘outstanding balance’ is the total of both the loan balance at the time the new loan is granted and the renanced loan amount (which
includes the loan balance at the time the new loan is granted).
3. If you go off the payroll, or your loan payments stop prematurely, contact the Call Center to make arrangements to repay your loan directly. If
you do not make payments on your loan at least once every three months, or do not complete repayment within ve years from the date the loan is
issued, your loan will default. When a loan defaults, the outstanding balance, minus any previously taxed amount, must be reported to the IRS as
4. If you are under age 59½ at the time any part of your loan becomes reportable, you may be subject to an additional 10 percent penalty tax. The
Federal Internal Revenue Code imposes this penalty tax on amounts deemed to be a distribution prior to your actual retirement.