Loans with a repayment schedule of five years (130 payments) or
less are treated as separate loans for purposes of repayment, tax liability
Loans being repaid with a term of five years or more will be
combined, resulting in a single repayment on the combined loan.
The minimum repayment on new loans is 2% of the member’s bi-weekly
gross salary. If a member takes out more than one loan, each loan is subject
to the minimum 2% periodic repayment.
Members are limited to holding 10 outstanding loans at one time. No
more than two new loans may be granted during any 12-month period.
Existing loans will not be combined with any new loans and will
continue with the minimum repayment at the time the loan was originally
Taxability calculation methodology for pension loans is
Outstanding principal is defined as the total
outstanding loan principal for all active loans, including NYC Deferred
Compensation Plan (DCP) loans, if any.
A member may borrow up to 90% of his/her accumulated contributions,
assuming minimum uniformed service of three years. The annual interest charged
on unpaid loan balances is currently 4%.
Why Pension Loans Cause Shortages
When you take
a pension loan, you cause a shortage in your Annuity Savings Fund
(ASF) account. That’s because the funds borrowed were earning 8.25% interest in
the account, but you pay the loan back at 4.0% interest, which is 4.25
percentage points lower than what the borrowed funds would have
earned had they remained in your account. Making regular pension
contributions during the loan repayment period, or even fully repaying the loan,
does not prevent the shortage from occurring.
Note: The Police Pension Fund recommends that
members carefully evaluate whether taking a pension loan is the best option.
If the member’s ASF account has fallen below the level required to
obtain full Service Retirement pension benefits, that account is deemed to have
a shortage. If not repaid, a shortage will
reduce the member’s pension.
Loan Repayment and Insurance
You may repay your
loan in full or in part at any time (minimum partial payment is $500).
addition, you may change your loan payment amount only during the months of May
If you die before retirement, loans with a combined balance up
to $25,000 are insured, subject to how long each loan has been outstanding, as
Days Loan Outstanding
% of Loan
Less than 30
60– 89 days
90 days and longer
A pension loan will be taxed when the member borrows taxable
contributions (i.e., 414H contributions made after 12/01/1989)
For members with 10 years or more of uniformed
- The loan principal is greater than $50,000;
- The term of
repayment exceeds five years.
For members with over three years but under 10 years of
- The loan exceeds the greater of 50%
of accumulated deductions or $10,000; or
- The term of
repayment exceeds five years.
The taxable portion of a loan is the portion of the principal
consisting of untaxed contributions and associated interest. A member under
the age of 59 1/2 will incur an additional 10% penalty on the taxable loan
If you borrow previously taxed contributions, the loan is not
considered a taxable distribution and is therefore not subject to the maximum
five-year repayment term above. Previously taxed contributions include 50%
Additional contributions and contributions made before December 1, 1989.
Form 1099-R Address: If
you borrow taxable contributions, PPF must issue IRS Form 1099-R. We will send
your 1099-R to the address listed on your loan application unless you request an
address change in writing to: The New York City Police Pension fund, 233
Broadway, New York, NY 10279 (attention: Loan Services Unit.)
Example: A member
with an outstanding loan of $34,997 (Loan 1) requests a new loan (Loan 2) of
$15,000 to be repaid in five years with 130 payments of $127.15. These loans may
not be combined. When the member starts to repay Loan 2,
he/she will now have two outstanding loans and will be making the following
payments each pay period:
Payment Number of
Loan 2 $127.15
Deferred Compensation Plan Loans
Deferred Compensation Loan Program (DCLP) works in conjunction with loans taken
at the Police Pension Fund. The maximum DCLP loan is the lesser
of: a) 50% of a participant’s DCP account
balance; or b) $50,000, reduced by the highest outstanding principal at
the Police Pension Fund during the 12-month period ending on the date of the
proposed DCLP loan.
Police Pension fund members seeking a DCP loan must have the Police
Pension Fund certify their highest outstanding PPF loan balance during the above
period. NYC Deferred Compensation will not issue a loan if the combined PPF/DCP
loan balance exceeds the $50,000 DCLP maximum. (For more information visit
www/nyc.gov/nycppf. Click the Loan Services link; then click the
Deferred Compensation Loans link.)
Principal Residence Exception
Ordinarily, a pension loan must be repaid within five years
to avoid tax consequences.
However, IRS Code 72 (p) (2) (B) (ii) provides an exception
to this rule. When a member takes a taxable pension loan in order to purchase a
principal residence, the IRS permits the member to defer taxes on that loan if
certain conditions are met.
To take advantage of this exception, the member must
establish to the satisfaction of the IRS that he/she applied the loan toward the
purchase of a principal residence.
The maximum residence loan exception amount is $50,000 per
member. If both spouses are uniformed members of service, each spouse may claim
the $50,000 amount.
This exception is not available to members of the service
who are in the process of retiring.
The Police Pension Fund does not provide tax counsel. It is
the member’s responsibility to comply with the terms of IRS Code 72 (p) (2) (B)
(ii). It is therefore recommended that members consult with a tax professional
prior to taking advantage of this exception.