Defined Benefit Pension Plans
A Defined Benefit (DB) Plan is funded by the Employer. Any money contributed to the DB plan is tax deferred and pooled into one account which is intended to cover all of the participants in the plan.
The assets in the pooled account can be put into multiple investments which could include, but are not limited to: stock, real-estate, money market funds, gold coins, checking accounts, and annuities. All of the money earned by the plan is also tax deferred.
Assuming the plan is properly funded; participants can take loans from the plan. The participant pays the loan back to the trust with an interest rate equal to the prime rate plus one, where the prime rate is determined on the date of issuance.
A participant may take a loan that is the lesser of
-$50,000 or
–50% of the assets in the plan.
For example:
(i) A DB plan has $40,000 in assets. A participant may take a loan up to $20,000.
(ii)A DB plan has $500,000 in assets. A participant may take a loan up to $50,000
While a participant may have two loans outstanding at the same time, special rules apply to the amount of the second loan and the two loans combined cannot exceed $50,000.
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