Time for loan processing to evolve
When employee retirement plan loans first became available, there were numerous concerns:
- For Recordkeepers, loan processing is cumbersome because it is manual and time-consuming, thus increasing workload and creating unprofitable tasks that hinder the Recordkeeper’s ability to focus on business-building initiatives. Processing a 401k loan, 457 plan loan or a 403b loan demanded a more efficient approach.
- Plan Sponsors had concerns that traditional loan processing meant higher administrative costs due to inefficient payroll adjustments with a typical manual payroll deduction process. And with traditional loan processing, the entire loan amount leaves the plan immediately, reducing both assets under management and employee savings.
- The number of Plan Participants requesting loans against their retirement savings is increasing. Today, more than 20% of Plan Participants have a defined contribution loan. This means that, without improvement to the loan processing administration, Recordkeepers and Plan Sponsors will be faced with increased workload, higher administration costs and less time to perform other more important tasks. In addition, Plan Participants will continue to lose out on valuable benefits.
ACA is an innovative, breakthrough solution that benefits everyone – and changes the way retirement loans are processed forever.
By licensing ACA’s patent portfolio, related software and know-how, you can eliminate the administrative burdens of managing inflexible traditional loans. Further, you can provide a unique and sensible loan solution for Plan Participants.
Specifically, ACA lowers plan administration costs, reduces participant borrowing, eliminates loan repayment via payroll processing, enables faster loan repayment, keeps more assets in the plans and encourages employee participation. Moreover, we have found that ACA loan balances are, on average, typically 12% lower than traditional retirement loans, and 30% of ACA loan repayments are higher than the minimum required.
ACA provides terminated participants the ability to pay their loan over the original term which can significantly reduce the incidence of loan defaults and leakage. According to the data compiled by the Pension Research Council, approximately 80% of terminated participants with traditional loans defaulted whereby only 25% of ACA terminated participants with loans defaulted in the time period of November 2004 to May 2011. The average traditional loan default amount was $6,540 and the average ACA default amount was $4,010, 38% lower. ACA helps mitigate this default risk.*
The ACA patented and patents pending technology provides original products and services that have been utilized by some of the nation’s leading Recordkeepers. ACA is flexible and adaptable and can operate on Recordkeeper software platforms.
We make it easy to implement ACA, with two options:
- License ACA’s patent portfolio and related software to provide a customized solution that allows you to tailor the product offering, prices and fees.
- Partner with an ACA authorized service provider to efficiently offer ACA to your clients.
ACA’s proven solution for qualified loan processing provides a controlled environment that respects the integrity and importance of saving for retirement through defined contribution plans. This one-of-a-kind solution provides more for Recordkeepers, Plan Sponsors and Plan Participants, including:
- Plan Participants borrow only the amount needed only, when needed
- ACA helps eliminate overborrowing—participants typically borrow less with ACA
- Plan Sponsors can set loan limits below IRC 72(p), if they choose to do so
- Unused loan line can be quickly reallocated to core investments
- Loan repayments are not tied to payroll deductions
- Participants can easily accelerate their loan repayments
- Many ACA loan repayments are higher than the minimum required
- Solution reduces operational processing burdens
- ACA loans can continue beyond the employee/employer relationship—there is no forced repayment in 30
to 90 days
- ACA allows repayment over the original life of the loan as long as participants maintain their account with your firm and do not roll over to another institution. This translates to asset retention for your firm