PLANSPONSOR - September 2017 - 48

FINANCIAL WELLNESS
Post-Employment Repayment
Plan sponsors can design their plan to
permit loan repayments to be made even
after an employee leaves the company.
This allows participants to continue
paying back their loan in installments, as
before. By doing so, they avoid needing to
repay the loan in full within the standard,
allowable 60 days, reducing the potential
for default at separation. According to the
2016 DC Survey, 51% of large plans now
allow participants to continue loan repayment
post-employment. Conversely, just
10% of small plans allow this.
Carrington says technology has
facilitated this process of repayment. For
instance, it is much easier now to set
up an automated clearinghouse (ACH)
payment or a drop from a participant's
checking account, while in the past the
plan sponsor or recordkeeper had to bill
the participant, who then would have
to mail in a check. " Things have gotten
easier-and, candidly, they have been
easier for a while, " he says. " But there's
the question of familiarity. The last time
someone looked into this, eight or 10 years
ago, it was hard to do, so it has not been
revisited. Now they are discovering it isn't
so hard. " This is causing plan sponsors to
say, " 'We should do this,' " he says.
Financial experts typically caution
against 401(k) loans except as a last
resort. When asked about the extended
repayment option, adviser Jania Stout,
managing director of Fiduciary Plan
Advisors in Owings Mills, Maryland, says
it is a delicate balance. " It's good to have
loans designed so employees know that if
they need it they can get to it, " she says. " At
the same time, we don't want to make it so
easy that people don't think twice before
they take the loan. But, on the other hand,
you don't want them to be defaulted. "
For a participant with an unpaid loan
who is leaving an organization that offers
post-separation repayment, he will learn
about this program during his exit interview,
Carrington says.
He continues, " There tends to be
a generalization that people leave a
48 PLANSPONSOR.com September 2017
company because they lost their job or
got laid off; therefore, repaying a loan is a
problem. But that's actually the exception,
not the rule. The rule is that people leave
a company because they have a different
job, so they can continue paying the loan.
It makes more sense [to align around that]
than aligning the whole system around
the exception.
" What we're ultimately talking about
is trying to make it easier for participants
to do the good thing for themselves as
opposed to the bad thing, " he says.
Group Insurance Policy
On the product side, plan sponsors can
add a group insurance policy to their plan
that replenishes a borrower's account if
he is terminated. Tod Ruble, CEO of
Custodia Financial in the Dallas/Fort
Worth area, says his company's product
Loan Eraser, which was launched last
year, is a " necessary evil. "
" When a participant loses his job and
thinks his account is depleted, he figures
he'll just cash out, " Ruble says. " But we are
able to completely replenish his account,
and then the participant can choose from
the full array of rollover options available to
all participants. Loan Eraser basically puts
the participant back in his pre-loan status. "
Ruble explains that, once a plan
sponsor adopts Loan Eraser, participants
become enrolled in the program on taking
a loan and then pay a monthly fee for the
insurance through payroll deduction.
Once the product becomes part of the plan
sponsor's loan policy, the recordkeeper
builds it into its automated loan system.
" If you take the amount of the loan that
was defaulted, and the average age of a
borrower, which is around 40, that means
the borrower has 25 years left of accumulation
if he leaves that money in the plan-
decades of compounding, " he says. " That
is adding measurable financial wellness,
by simply protecting loans from default. "
Sharing Best Practices
Brad Weatherly, director, retirement benefits,
for Baylor Scott & White Health, a
large not-for-profit health care system
KEY POINTS
* The majority of plan sponsors
do not have a feature in place
whereby employees can avoid
a loan default should they leave
a job unexpectedly.
* There are options for plan
sponsors-both plan design
and product-based-that can
help loan takers avoid the
default that often occurs when
they are terminated from a job
or move to another employer.
* Preventing defaults stops plan
leakage, which has reduced
retirement security for those who
leave unable to repay in full.
headquartered in Dallas, helped redesign
the system's retirement program a year
ago August and initiated a loan payback
policy-one he had tried unsuccessfully
to implement with a prior employer. " I
felt it could be key to participants' having
a successful, or an unsuccessful, retirement, "
Weatherly says.
The policy has been in place for 10
months now, and Baylor Scott & White
currently has 5,999 participants with
general-purpose loans, 140 with mortgage
only loans and 218 with both. As of August
2017, 78 separated participants were
making loan repayments (see " Rethinking
Loan Repayments, " PLANSPONSOR, July/
August 2017).
Carrington says, " People in this field
move from plan to plan, recordkeeper to
consultant-all these things. " When they
do so, cross-pollination takes place. " Their
ideas become more widely known, and
actions allowing plans to permit repayment
of plan loans or plan rollovers or
other related actions that help participants
avoid missteps make it easier for them to
do the right thing for themselves. " Such
ideas eventually become the norm, as
many work to make that happen.
" Part of our job is to make these ideas
familiar and less daunting for sponsors, "
Carrington says. -Judy Faust Hartnett
http://www.PLANSPONSOR.com
PLANSPONSOR - September 2017

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