Processing Loans & Hardship Withdrawals

Loans
  • A participant may borrow from their accounts in the Savings Plan—the 403(b) Smart Account and the Rollover Account.
  • The maximum amount they may borrow is 50% of their total account balances in the Savings Plan, or $50,000, whichever is less. The minimum amount they can borrow is $1,000.
  • Only one loan can be taken at a time. Once a loan is paid off, the participant can take a new loan.
  • The normal processing time for a loan is at least 30 business days, assuming that all required paperwork is received on time and in good order.
  • For a full list of rules, see Loans.
Managing Loan Repayments
  • Once an employee has been approved for a loan, the Fund will notify you via email indicating the loan terms.
  • Loan repayment is done via a post-tax deduction and is taken directly from payroll. If an employee does not have enough money in their paycheck to cover the loan payment, the Fund will accept a direct payment in the form of a check.
  • After each pay date, it’s important to remit loans payments as soon as possible. If a loan payment is not received within 90 days of its due date, the loan will go into default.
  • If the loan defaults, the loan balance (including the amount that was already withheld from their check and not transmitted to the Fund via YERDI) is deemed a distribution, which is treated as taxable income for the employee.
  • The employee can still pay off the loan after default, but will also have to pay phantom interest. A loan payoff after default does not reverse the taxable distribution, but will return the borrowed funds to the employee’s 403(b) Smart Account and/or Rollover Account to use for retirement. It will also allow them to take out a new loan. They will not be able to take out another loan until their defaulted loan is paid in full.
  • For an employee who turns 59 ½, terminates or passes away, whichever comes first, the Savings Plan balance is automatically reduced by the unpaid loan. Any portion of a loan originating from rollover money is also automatically removed from the balance upon default. After any of these situations occurs, the defaulted loan can no longer be paid back.
Hardship Withdrawals

An employed participant who has made tax-deferred contributions to the 403(b) Smart Account may withdraw these contributions if they have a financial hardship.

Before the participant qualifies for a hardship withdrawal, they must take a withdrawal of any After-Tax or Rollover accounts they may have with the Fund. They must also use the loan available through the Savings Plan. By taking a hardship withdrawal, a participant does not avoid paying taxes on the withdrawal.

The Fund requires proof of hardship. The law defines a financial hardship as:

  • Medical expenses incurred or expected to incur, or to obtain medical care not covered by health insurance for themselves or for their dependents.
  • Costs directly related to the purchase of a primary residence (excluding mortgage payments).
  • Tuition payments for the next 12 months of college or post-secondary school for themselves or for their dependents.
  • To prevent eviction from or foreclosure upon their primary residence.
  • Payments for burial or funeral expenses for their deceased spouse, parent, child or dependent.
  • Expenses for the repair of damage to their primary residence that qualify for a casualty deduction under IRC Section 165.
Hardship Withdrawals and Additional Contributions

If an employee takes a hardship withdrawal from their 403(b) Smart Account, they can continue to contribute to their Smart Account.

the Process of Taking a Hardship Withdrawal
  1. The employee requests hardship withdrawal forms from the Fund.
  2. Once the employee has completed and sent back the forms, providing supporting documentation, the Fund can process the hardship withdrawal and mail them a check.
  3. The Fund will send you a letter instructing you to stop voluntary contributions and informing you of the date the employee may resume voluntary contributions.