APPLICATION FOR PARTICIPANT LOAN

Transcription

1 APPLICATION FOR PARTICIPANT LOAN Name of Applicant: Address: Company: Sample Company, Inc. Plan # 001 Requested Loan Amount [ ] $ [ ] The Maximum nontaxable amount available Desired Term Of Loan months (maximum of 60 months unless the loan is used to buy your principal residence). The loan [ ] is [ ] is not for the purpose of purchasing my principal residence. Repayment will be made Month Participant Agreement I agree to make interest and principal payments when due.. I understand that failure to make such payments when due in immediate could result taxation of the outstanding balance of the loan. I also understand that failure to repay the balance of this loan will reduce the benefits available to me from the retirement plan equal to the outstanding balance of the loan. Signed: Date

2 Spousal Consent I have been informed that this loan is secured by my spouse's vested accrued benefit under the plan. I realize that a failure to repay the loan may reduce the benefits available to my spouse and me upon my spouse's retirement or other termination of employment. Knowing this, I voluntarily consent to the loan of plan assets to my spouse according to the terms of this Loan Application. I agree to release and discharge the Trustee, Plan Administrator and Company from all liability for acting pursuant to this consent. Signature Date Witness to Spousal Consent Spousal consent must be witnessed by a Notary Public or an Authorized Company Representative. Notary Public Subscribed and Sworn before me this day of,. Notary Public State of My commission expires OR Company Representative Signature Title Date Loan Authorization The Trustee is hereby authorized to make the loan as requested to the participant. Signature Date

3 TRUTH IN LENDING DISCLOSURE STATEMENT PARTICIPANT LOANS Name and address of Creditor Plan Name and Address of Participant ***participant4*** Sample Company, Inc. Defined Benefit Pension Plan 77 Sample Company Ave Somewhere, PA ***participant*** ***participant1*** ***participant2***, ***participant3*** ANNUAL PER- CENTAGE RATE The cost of your credit as a yearly rate FINANCE CHARGE The dollar amount the credit will cost you AMOUNT FINANCED The amount of credit provided to you or on your behalf TOTAL PAYMENTS The amount paid after you have made all payments as scheduled ***interest rate***% $***finance charge*** $***amount financed*** $***Finance Charge*** Your payment schedule will be: Number of Payments Amount of Payments Date Payments are Due ***no of payments*** ***IF estimate*** $***payment amount******if estimate*** Month Demand: Prepayment: This obligation has a demand feature. If you pay off early, you will not have to pay a penalty See your employee benefit plan document and any Loan Agreement and/or Note for any additional information about nonpayment, default, any required repayment in full before the scheduled date, and prepayment refunds and penalties. The entire amount financed - $***amount financed*** - will be paid to you. You acknowledge receipt of this disclosure on the date below prior to signing the note. Employee Date

4 SAMPLE COMPANY, INC. DEFINED BENEFIT PENSION PLAN LOAN PROCEDURE 1. INTRODUCTION Pursuant to the provisions of the Sample Company, Inc. Defined Benefit Pension Plan (hereafter called the Plan), if you are a Plan participant, you may be eligible to borrow from the Plan. This document explains the procedures to be followed regarding loan applications and administration, and is intended to provide you with some basic information in deciding whether to apply for a loan and in making an application for a loan. It also contains information that is pertinent if you already have an outstanding loan from the Plan. Requests for further information and for the forms required to apply for a loan should be directed to the Administrator. Please note that this loan procedure may be changed without notice with respect to loans to be taken out after the date of the change as well as with respect to loans then outstanding. Therefore, before relying on the information contained in this document, you should verify that it is the current loan procedure. 2. CONTROLLING LAW Rules relating to loans from retirement plans are found in the Internal Revenue Code of 1986 (the Code), the Employee Retirement Income Security Act of 1974 (ERISA), and in rulings and regulations issued by the Internal Revenue Service (IRS) and the Department of Labor (DOL). In addition, other federal laws, such as the Truth-In-Lending Act and various credit reporting acts may also apply. Certain state laws may also be applicable, to the extent they have not been superseded by ERISA or other federal law. ERISA and the Code are both structured to reflect the fact that any loan must represent, as between you and the Plan, the same type of genuine debtor/creditor relationship that would exist between you and a bank if you sought the same loan from an unrelated lending institution operating in a conventional commercial context. 3. ELIGIBILITY REQUIREMENTS You are eligible to borrow from the Plan if you are a participant, a beneficiary of a deceased participant, or an alternate payee under a qualified domestic relations orders. In addition, you must satisfy three conditions. First, you must be a party-in-interest (which you are if you are employed by the Company). Second, you must have a vested and unencumbered account in the Plan that can be pledged as security for repayment of the loan and that is sufficient to secure such repayment without violating DOL rules which limit the portion of your account that can be pledged for this purpose. Finally, you must be capable of executing legally enforceable instruments such as notes, security pledges, and such other documentation as may be required to create a borrower/lender relationship and protect the assets of the Plan. 4. APPLICATION PROCEDURE All loan applications must be made on forms provided by the Administrator and must be supported by such documentation as required by the Administrator. Each completed application should be submitted to the Administrator at least 30 days prior to the date on which the loan is to occur. If the application is incomplete when submitted, you will be notified of the deficiencies in the application within 10 business days of the date on which the incomplete application is received. Within 15 days of the date on which a completed application is received, the Plan Administrator will advise you in writing of (1) whether the loan has been approved in whole or in part, or denied in whole or in part, (2) your right to appeal any denial or partial denial and the procedures to be followed in any such appeal, and (3) the steps to be taken and the documents to be executed and delivered in order to complete the loan transaction if the loan has been approved in whole or in part. 1

5 5. GRANT OR RENEWAL CRITERIA Each loan application will be evaluated (and the requested loan either granted or denied) on the basis of the following criteria: Fund Availability: The Plan can only make a loan (1) if it has funds available to lend without violating rules relating to the prudent investment of Plan assets; (2) if the loan will not impair the liquidity of the Plan; and, (3) if you are deemed to be a highly compensated employee, the loan will not diminish available funds so as to prevent non-highly compensated employees from having comparable access to loans from the Plan. Creditworthiness: It can be determined if you are likely to be able to repay the loan on a timely basis after examining your personal financial statement, reports (if any) received from credit agencies, and such other information as the Administrator deems necessary. However, in general, you will be deemed creditworthy: If your total monthly loan obligations to all lenders, including the payments to be made on the requested loan from the Plan, do not exceed 25% of your monthly income from all sources; or If your monthly household income available to meet housing, utilities, transportation, clothing, insurance, food, medical care, and similar necessities, is at least $2,000 after rent or mortgage payments, and after service of all indebtedness (including the requested loan) in accordance with its terms; or If you authorize repayment of the loan by payroll deduction and the Company agrees to make such payroll deductions; or If you pledge as security for repayment of the loan that portion of your account balance in the Plan (1) which is fully vested, unencumbered, and is not contingent on your survival of any other person or fulfillment of any material condition precedent; (2) which is equal to an amount not less than the amount of the loan, and (3) which when added to all other amounts of your vested interest pledged to secure other loans (if any), does not exceed 50% of that portion of your vested interest in the Plan that satisfies the description in clauses (1) and (2) above. Loan Amount:. The maximum loan that can be made to you is based on your vested accrued benefit. You may borrow up to 50% of your vested accrued benefit but not more than $50,000. In some cases, participants with account balances up to $20,000 may borrow up to 100% of their vested account balances. See the Plan Administrator to ask if you may borrow these additional amounts. Spousal Consent: If you are married, and the plan requires spousal consent before distributions may be made, you must deliver to the Administrator your spouse's written and notarized consent before a loan can be approved. If your spouse cannot be located, a notarized affidavit to that effect is required in lieu of your spouse's consent. 2

6 Party-In-Interest Status: You must be a party-in-interest (as that term is defined in section 3(14) of ERISA at the time the loan is to be made. 6. TERMS AND CONDITIONS Length Of Loan: A loan is generally limited to a maximum of 5 years, but it may be shorter than 5 years if you wish a shorter term or if your Accrued Benefit is scheduled to be distributed on a date earlier than 5 years from the date of the loan. The length of the loan may be more than 5 years if you are a participant in the plan and the purpose of the loan is to finance the purchase of your principal residence. Payments: Loans will be repayable Month. Periodic payments are calculated to be equal in amount over the term of the loan. All loans can be prepaid without penalty. Amount Of Loan: The maximum loan that can be made, when added to the outstanding balance of all your other loans from the Plan, cannot exceed the lesser of (1) $50,000 reduced by your highest unpaid loan balance (principal and interest) during the 1-year period ending on the day before the loan is made, or (2) 50% of the vested portion of your account balance. Expenses: The actual and reasonable expenses (including attorney's fees) incurred by the Plan in connection with the documentation of a loan, the recording of security interests, the enforcement of the terms of the loan, and in collection activities associated with any default, will be charged to your Accrued Benefit. Security For Repayment: Each loan will be secured by a pledge of not more than 50% of the vested interest in your account, which pledge will create a first lien in that interest. If the amount so pledged is not, in the Administrator's judgment, sufficient to assure full repayment of the principal, all accrued interest and the cost of enforcement of the terms of the loan in the event of default, additional security will be required. The additional assets pledged as security will be such that, in the event of default, they may readily be foreclosed upon, sold or otherwise disposed of to persons who are not parties-in-interest or disqualified persons (within the meaning of section 4975(e)(2) of the Code) where the anticipated proceeds of such distress sale or disposition would be at least as much as the unamortized loan balance not fully secured by a pledge of your vested interest in your account. Normally, additional security will be acquired by the pledge (accompanied by appropriately endorsed stock powers or other documents facilitating transfer of ownership) of (1) stocks, bonds, and other negotiable securities traded on a national exchange or for which there exists a readily accessible market, (2) bank certificates of deposit, (3) cash value life insurance policies, and (4) similar investment assets. Where you are unable to provide security of the type described in the preceding sentence, and where the purpose of the loan is to meet emergency or humanitarian needs, the Administrator is authorized to direct the acceptance of a security interest creating a recordable first lien interest in investment real property (other than real property in or on which you reside) having a value (as determined by an independent appraiser) equal to at least 200% of the amount of the security interest therein, or a real estate tax assessment base of at least 125% of the amount of the security interest therein. Interest Rate: All loans must bear a reasonable rate of interest. Under regulations issued by the DOL, the Plan must charge a rate of interest that will generate a return commensurate with the interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances. Your Summary Plan Description provides information on the interest rate that will be charged on any loan made to you. The actual interest rate charged will be shown in your Participant Promissory Loan Note 3

7 Events Of Default: If an Event Of Default occurs, all unpaid principal and accrued interest become due and payable on the fifth business day following the occurrence of the default, without further notice. The occurrence of any of the following Events Of Default will constitute a default: If you fail to make two consecutive scheduled payments on the dates when due (or, if such date is not a regular business day where the loan is administered, on the next business day); If a distribution of Plan benefits is made to you, your beneficiary, or to a person who is an alternate payee of your interest in the Plan, and the event of default is not waived in writing by the Administrator; If any property you pledged as security for the loan becomes subject to attachment or garnishment, or is otherwise disposed of, unless you provide adequate substitute security approved by the Administrator; If you make an assignment for the benefit of creditors; file a petition in bankruptcy; are adjudicated insolvent or bankrupt; or become the subject of any wage earner plan under the federal Bankruptcy Code or under any applicable state insolvency law. If a bankruptcy, insolvency, or similar proceeding is started against you and is not dismissed by the 60th day after the date on which the proceeding was started, or you consent to or approve of any such proceeding or the appointment of any receiver for you or any substantial part of your property, or the appointment of any such receiver is not discharged within 60 days; If the Administrator determines that the loan's security has become inadequate and you fail to provide adequate security within 5 business days after receipt of written notice from the Administrator that the provision of such additional security is required. If an Event Of Default occurs and you fail to pay the entire outstanding balance (principal and accrued interest) of the loan within 5 business days after the occurrence of the Event Of Default, the Administrator will take such action as it deems necessary or desirable to preserve Plan assets. These actions may include demand for payment served upon any guarantor of your obligation, commencement of legal proceedings against you and against any guarantor who has refused to honor a guarantee, foreclosure upon and disposition of so much of the assets pledged as security for the loan as is necessary to retire the entire amount thereof and to pay all reasonable costs associated with collection of the unpaid loan balance (including costs associated with conducting a sale or other disposition of pledged assets), or a combination of legal action and disposition of assets pledged as security for the loan. Disposition of assets pledged as security for the loan may include public or private sale of the pledged assets, with or without competitive bidding, as determined by the Administrator, who will consider the general interests of the Plan to be superior to your interests in conducting any such disposition of assets. If the disposition of pledged assets does not yield sufficient funds to satisfy the entire indebtedness, the Administrator will begin legal proceedings against you to collect the balance of the loan, unless it appears to the Administrator that the such proceedings would not be in the best interests of the Plan. Proceeds from the disposition of pledged assets will be applied first to defray the reasonable expenses of conducting the sale, including reasonable attorney's fees, then to payment of accrued but unpaid interest on the loan, then to the repayment of the principal balance of the loan, and finally, to the extent that there remains any unapplied surplus, to your interest (either by credit to your account, or by direct payment to you, as is determined by the Administrator to be appropriate). 4

8 7. MISCELLANEOUS MATTERS You, as borrower, will agree, on your own behalf and on behalf of your beneficiaries, to accept your promissory note at full face value (principal balance, plus accrued interest) as part of any benefit distribution that becomes payable to you or your beneficiaries while any portion of the principal or interest on the loan remains unpaid. No amount from your account will be distributed to you other than by distribution of your promissory note to the extent that such distribution would reduce your vested interest in your account balance to an amount less than 200% of the then outstanding account balance. If a qualified domestic relations order (QDRO) is served upon you pursuant to which an alternate payee is granted an interest in all or part of your account, the portion of your account made subject to the (QDRO) will not be considered a part of your account balance when calculating your ability to borrow from the Plan. If a QDRO is served upon the Plan at a time when you have a loan outstanding, the QDRO will be deemed to apply first to your unencumbered account balance (to the extent such application does not violate the terms of the QDRO). If the QDRO applies to any part of the assets pledged by you as security for the repayment of a loan, the assets so affected will continue to be encumbered by the security interest of the Plan therein, which will be superior to any interest of the alternate payee in those assets. All loans must be properly documented. However, documentation alone does not establish a transaction as a loan. If for example, it is shown that you did not intend to repay the loan, or that the Plan did not expect repayment and did not take appropriate steps to compel that repayment in the event of a default, the transaction could be recharacterized, and adverse income tax consequences could result. 5

9 COLLATERAL INSTALLMENT PROMISSORY NOTE Date: ***note date*** Name and address of Creditor Plan Sample Company, Inc. Defined Benefit Pension Plan 77 Sample Company Avenue Somewhere, PA Name and Address of Participant ***participant*** ***participant1*** ***participant2***, ***participant3*** ***participant4*** Amount: $***amount financed*** FOR VALUE RECEIVED, I, ***participant***, the undersigned Participant (hereafter called the Maker) in the Sample Company, Inc. Defined Benefit Pension Plan (hereafter called the Plan) hereby promise to pay to the order of the Trustee of said Plan, or said Trustee's successor, at such place as the Trustee may hereafter appoint, pursuant to this instrument (hereafter called the Note) the principal sum of $***amount financed***, together with interest thereon at the rate of ***interest rate***% per annum from date until maturity, both principal and interest being payable in lawful money of the United States in the following manner: Said principal sum will be repaid in ***no of payments*** installments beginning on ***first payment*** at the rate of $***payment amount*** per installment. Each subsequent installment payment due under this Note will be paid Month until paid in full. Each payment shall first be applied to the interest accruing under the terms hereof and then to a reduction of the principal indebtedness. However, notwithstanding the foregoing, this Note shall be prepayable in whole or in part without penalty or premium. The Maker(s) and the undersigned Endorser(s), if any, of this Note further agree to waive demand, presentment, notice of non-payment and protest, and agree that the Trustee may extend the time of payment, or otherwise modify the terms or conditions or provisions of this Note without notice to and without obtaining the consent of any Co-maker(s) and/or Endorser(s) of this Note and that such Co-maker(s) and/or Endorser(s) shall thereafter jointly and severally remain absolutely and unconditionally liable under this Note as if the said extension or modification had expressly been consented to by such Co-Maker(s) and/or Endorser(s). If suit shall be brought for the collection of this Note, or this Note has to be collected upon demand of an attorney, the Maker and Endorser agree to pay the Trustee's reasonable attorney's fees for making such collection, together with all costs and other professional fees including those of the Plan's administrator and/or an accountant that the Trustee may incur in connection with any of the foregoing. As collateral security for payment of this Note and any note given in extension or renewal of this Note, and as security for the payment of any other liability or liabilities of the Maker to the Plan, whether now existing or hereafter arising, Maker hereby pledges, assigns, and encumbers to the Trustee on behalf of the Plan and grants a first lien security interest to the Trustee on behalf of the Plan in and to all of Maker's interest as a participant in Maker's straight life actuarial equivalent of the present value of the 1

10 vested accrued benefit (or account balance) as of the last actuarial valuation date of the Plan, the present market value of which is hereby estimated to be the sum of $***acct value***. For value received, Maker hereby further agrees that (1) upon the non-performance of this promise, to pay, or (2) upon the bankruptcy or the insolvency of the Maker, or (3) upon the bankruptcy or the insolvency of the Maker, or (4) upon the non-payment of any of the liabilities of the Maker, or (5) upon failure of any of the liabilities of the Maker, or (6) upon the non-payment of any of the liabilities of any of the undersigned to the Plan, or (7) upon failure of Maker within 3 days after the date the Trustee mails notice addressed to Maker at his address as given by him at the time of the making of this Note and endorsed at the foot of this Note, or if not so endorsed at his last known address to make satisfactory payment on account, this Note and all other obligations and liabilities of the undersigned to said Trustee at the option of the Trustee shall forthwith become due and payable without further demand or notice, except that the Trustee shall allow proper credit for unaccrued interest, if any, paid in advance. Maker further agrees that the Trustee shall have full power and authority to apply the collateral to the payment in full of (1) all legal and other costs of collection; (2) the full unpaid principal balance outstanding under this Note, together with all unpaid accrued interest at the current rate as well as the deferred rate after default or maturity hereunder, whichever shall occur first; and (3) all other liabilities of the undersigned to the Plan, whether due or not or hereafter arising, as the Trustee shall determine. Any right of redemption by Maker in the above described collateral is expressly waived and released. Maker agrees that the exercise, or the omission to exercise by the Trustee of any of the rights and privileges hereby conferred upon the Trustee shall not waive or affect any other or subsequent right to exercise same. Notwithstanding the payment terms of this Note and notwithstanding the Maker being current and in good standing with respect to all obligations to be performed by Maker hereunder, the principal balance remaining unpaid under this Note, together with all accrued interest thereon, shall nevertheless become due and payable upon the occurrence of any of the following events: (1) if the Plan or any Trustee(s) and/or administrator(s) thereof are advised of facts and circumstances of any type or nature whatsoever whereby the Plan, the trust maintained thereunder, the Trustees and/or the administrators, may become obligated to pay to any person, party or government entity, including but not limited to Maker, his spouse, beneficiaries, heirs, executors, or personal representatives, all of any portion of the collateral described above whether in the nature of a transfer, rollover, assignment, benefit, refund, return of overpayment, penalty, fine, or distribution; or (2) if the Maker as participant or any person claiming by, through, under, or against the Maker as a result of a voluntary or involuntary termination of Maker's employment, or for any other reason or due to any other circumstance whatsoever, attempts to make or demand a distribution of the Maker's accrued Plan benefits without first repaying this loan in full, plus all accrued interest; or (3) if the Plan's Trustee(s) and/or administrator(s) are prevented from enforcing the terms and provisions of this Note or the collateral securing the Note is impaired by reason of (1) any federal of state statute or regulation now existing or hereafter amended or adopted; or (2) any court or agency decision, determination, ruling or order, even though the Trustee(s) and/or administrator(s) are not a party to such court or administrative proceeding; or (3) an amendment, modification, or supplement to the Plan in which Maker's participant interest in the Plan is collateral for this Note. 2

11 Maker and Endorser acknowledge and agree that any right or claim against the sponsor of the Plan or its officers, directors and stockholders that either of them now have or which may arise in the future, even though such sponsor or any of its officers, directors and stockholders may also be one or more of the Trustees of the Plan, shall under no circumstances constitute a defense, set-off or counterclaim to any of their obligations arising under this Note, or to any suit or action brought against them under this Note by the Trustee, and they hereby waive all such defenses, set-offs, and/or counterclaims. Maker and Endorser acknowledge they are both absolutely and unconditionally, jointly and severally liable to the Trustee in their individual capacities in the event of default or the occurrence of event(s) requiring payment in full of this Note, will be required to repay the full indebtedness plus accrued interest, or any portion thereof not repaid out of the collateral, and if such collateral be unavailable or insufficient for any reason, then Maker and Endorser, or either of them, will be required to pay same from their personal assets, failing which the Trustee shall have the right to bring suit in a court of competent jurisdiction in order to obtain a money judgment against Maker and Endorser, joint and severally, including court costs and reasonable attorney's fees and other professional fees including those of the Plan administrator(s) and/or accountant and thereafter to engage in proceedings to collect such judgment from Maker and Endorser or either of them. A default hereunder or such other occurrence as shall entitle the Trustee to demand payment in full of the entire unpaid principal balance of this Note may result in a premature distribution of all or a portion of the collateral securing this Note and as a result Maker, as a participant in the Plan, may be charged with such distribution. The spouse of the Maker, in consideration of and to induce the Trustee to make the within loan to Maker, (1) has joined in the execution of this Note as a Co-Maker hereof, (2) agrees to be jointly and severally liable for all obligations hereunder, (3) waives the right to receive or be the co-recipient of any portion of the proceeds hereof, all of which shall be disbursed by the Trustee to the order of Maker and such spouse hereby pledges, and (4) assigns and encumbers to the Trustee and grants first lien security interest to Trustee in and to all of such spouse's interest in the collateral, which may now or hereafter arise, whether as a survivor of Maker or otherwise. Co-Maker further agrees to be bound by all undertakings of Maker under this Note, and by signing this Note consents to the within loan and to the pledging of said spouse's interest in the collateral, and waives the requirement, if any, of signing any separate consent form to this Note. The determination of the deductibility, if any, of the interest paid by Maker on this Note, not matter what the circumstances of the loan and no matter what the nature of the collateral, is the sole responsibility of Maker. Maker acknowledges that neither the Trustee, the Plan administrator(s), plan counsel, any third-party Plan administrator, nor any other Plan fiduciary makes any warranty or representation in this regard to Maker. Maker and Co-Maker each acknowledge receipt of a completed copy of this Note and Maker acknowledges receipt of the proceeds of the loan, broken down as follows: Total Amount Financed: $***amount financed*** Net Loan Proceeds: $***amount financed*** 3

12 THIS PROMISSORY NOTE IS SECURED BY MAKER'S INTEREST AS A PARTICIPANT IN THE PLAN AND CO-MAKER'S INTEREST AS MAKER'S SPOUSE IN SAID PLAN AND MAKER'S FAILURE TO PAY THIS NOTE IN ACCORDANCE WITH ITS TERMS OR ANY OTHER DEFAULT UNDER THIS NOTE MAY RESULT IN A DEDUCTION FROM MAKER'S PLAN BENEFITS OTHERWISE PAYABLE TO MAKER AS A PARTICIPANT IN SAID PLAN, OR TO MAKER'S SPOUSE, OR TO MAKER'S BENEFICIARIES. Maker/Participant) 4