The NYC Deferred Compensation Loan Program works in conjunction with the member’s Police Pension Fund account, per IRS rules. The $50,000 maximum applies to all accounts and members taking DCLP loans are required to have the Police Pension Fund certify their highest outstanding balance within the last twelve (12) months. NYC Deferred Compensation will not issue loans in excess of $50,000 maximum. For more information see the link below for the Deferred Compensation Loan Program.
NOTE: Members are reminded that taking pension loans at 4% will result in a loss of interest (currently your annuity is receiving 8.25%) to your Annuity Savings Fund. This loss of interest may create a shortage in a member’s account even if that member repaid the loan before he/she retires and/or continues to make pension contributions. It is strongly recommended that members carefully consider other available funding sources (e.g. equity loans, municipal credit, reduced rate car loans) before taking a pension loan. A loan secured outside the Police Pension Fund at a rate less than 8.25% allows your pension funds to remain fully on deposit and continue to accrue interest, thereby preventing (or reducing) your shortage upon retirement.
FROM: Executive Director, NYC Police Pension Fund
TO: All Uniformed Members of the Service
SUBJECT: DEFERRED COMPENSATION LOAN PROGRAM
- The Deferred Compensation Loan Program went into effect on June 1, 2005 for 401K accounts and 457 accounts on September 19, 2005. According to Section 72(p)(2) of the Internal Revenue Code the maximum allowable loan is the lesser of 50% of the present value of a participant’s account balance in the DCP plan or, $50,000 reduced by the highest outstanding balance of loans from all qualified employer plans of the SAME EMPLOYER. This includes pension loans and other Deferred Compensation Plan loans during a 12 month period ending on the date on which such a loan is going to be made.
- The Deferred Compensation Loan Program will charge an administrative fee of $50.00 plus a maintenance fee of $8.75 per quarter ($35.00 per year) and will only issue loans of you repay them in five (5) years. The interest rate will be prime rate plus 1% (currently 7.5%) which will be paid back into member’s accounts. Deferred Compensation will require a pension fund certification on any current pension loan outstanding and they WILL NOT issue any loans in excess of the $50,000 maximum.
- The Police Pension Fund loan application has been revised with a statement that reflects any outstanding balance you may have within the Deferred Compensation Loan Program. Any amount over the $50,000 maximum is a taxable distribution and you will receive a 1099R for the taxable amount.
- Please be advised that taking a Deferred Compensation loan at 7% interest with a loaning fee plus administrative charges to pay off a pension shortage or outstanding pension loan is not recommended. Furthermore, although a pension loan is generally inadvisable because it may cause a shortage, when a loan is going to be taken against retirement savings, a pension loan which costs 4% with no administrative fees or maintenance charges is far superior to a deferred comp loan at a higher interest rate plus added fees. To review further information regarding the Deferred Compensation Loan Plan and to obtain a deferred Compensation Loan application you may visit their Web site at www.nyc.gov/deferredcomp.
- For your information.