Loan repayment amounts include principal and interest. Repayments, and all other 401(k) contributions, are made through payroll deductions and are collected electronically from the employer's authorized bank account every payroll check date.
Loan repayments are reinvested in the participant's account in the same investments as the current contributions. Repayment amounts are determined by the employer's payroll frequency and are made every time the employer runs a payroll. If a repayment is not made within 90 days of the scheduled repayment date, the loan will default.
Paychex Retirement Services will notify the employer's payroll department of the loan repayment schedule.
If the participant wishes to pay the balance of the loan before the end of the repayment period, he may pay 100% of the balance due with a certified check or money order. If the participant wishes to use this option, he may call the Paychex Retirement Services Information Line at (800) 401-3999 or log on to the Paychex Online web site to determine the final payment amount. The participant is allowed three weeks to forward the final payment to Paychex Retirement Services. Loan deductions processed during the three-week period will not be included in the final payment amount.
Under no circumstances is the participant allowed to pay off a portion of the loan balance with a personal check.
A loan is considered to be in default if Paychex Retirement Services has not received any scheduled payments during a ninety-day period. If it is determined that the loan is in default, the participant will be required to repay the entire outstanding loan amount.
At the point the loan is in default, the Internal Revenue Service mandates that the outstanding value of the loan becomes taxable to the participant. The loan may also be subject to an early withdrawal penalty.
All amounts outstanding at the end of the fifth year of the loan will be considered to be in default and reported to both the participant and the Internal Revenue Service as a taxable distribution. The only exception to the five-year rule is if a loan is used to buy a participant's principal residence. In this case, a repayment schedule of 10 years will be allowed. If the loan is not repaid within the ten-year period, it is considered to be in default.
Upon receipt of the final payment, the loan will be canceled and determined to be paid in full. The participant is then eligible to request another loan through the Retirement Services Information Line or by accessing the Paychex Online web site.
The participant may determine his loan balance by calling the Retirement Services Information Line at (800) 401-3999 or by accessing the Paychex Online web site.