What are some key considerations of taking a loan?

1. Your loan does not have tax consequences so long as it’s repaid in full by the end of its term.
2. If you leave city employment before the loan is repaid, you can either pay it in full, continue post-separation loan payments, or pay applicable tax on the outstanding balance.
3. The interest you pay to yourself on your loan could be more or less than you would earn if you did not take the loan and left those funds in your account.
4. If taking the loan causes you to reduce your contributions, you will accumulate less in your DCP account than had you not taken the loan.
5. If you default on the loan, you will have to pay applicable tax on the defaulted amount and you could be restricted from taking future loans.

What types of loans are available?

There are two types of loans

• General loans—This loan type can be requested for any reason, and you can choose a repayment term of 1 to 5 years.
• Residential loans—This loan type can only be requested for the purchase of a principal residence. You can choose a repayment term of 1 to 15 years. All residential loans require a signed promissory note, a Truth-In-Lending statement, and the appropriate documentation. You may only have one residential loan at any one time.

Both types of loans have the same interest rate, which is set at 2% above the Prime Lending Rate as declared in The Wall Street Journal on the first business day of each month.

How much can I loan to myself from my account?

You are eligible to take up to two simultaneous loans from your account during any given time. The sum of both loans must not exceed the lesser of the following amounts (minus the highest outstanding loan balance(s) during the last 12 months and any defaulted loans including accrued interest):

• $50,000
• 50% of your account balance

The minimum loan amount is $1,000, which means you must have at least $2,000 in your account to be eligible to take out a loan.

Example: Participant has a balance of $10,000. The maximum available loan amount is $5,000. In January the participant borrows $2,000. A few months later the participant wishes to borrow an additional $2,000. This is acceptable because the total of the two loans is less than $5,000. A few months later the participant wishes to borrow an additional $1,000, but would be unable to because only two loans are permitted at any one time.

Example: Participant has a balance of $10,000 and borrows $5,000 in January. In February, having a change of mind, the participant repays the $5,000 in full. Later that year the participant has another change of mind and wants to borrow the $5,000 again. However, because the maximum available loan amount must be reduced by the highest outstanding loan balance in the previous twelve months (which in this case is $5,000), the participant does not have an available loan amount. But in the following January (after twelve months has passed) the participant could borrow $5,000 again.

How long does it take to process a loan?

Loans are processed within three to five business days and funds are sent out two business days after processing. Loan funds can be sent via direct deposit to your checking or savings account within two to three business days after processing. Your banking information must be on file for seven business days for loan funds to be deposited into your account. You can also pay $25 for express delivery for loan funds to arrive two to three business days after processing.

How do I apply for a loan?

You can request a loan by logging in to your DCP account, completing a Loan Application Form, or calling the Service Center at 844-523-2457.

Are there any fees for taking out a loan?

There is a one-time $50 loan origination cost and a $25 annual account maintenance cost that is deducted quarterly ($6.25 per quarter) until your loan is paid in full. All interest that accrues is paid back into your account.

What are the different payment methods available?

• Active Participants—While you are employed with the City, your loan payments are deducted from your paycheck on a biweekly basis.
• Retired or Separated from City Service Participants—After separating from service, loan payments are automatically changed from biweekly to monthly payments. You will receive a notification from Voya for an option to have your loan payments deducted from your checking or savings account. To ensure you don’t miss any loan payments, be sure to add your bank information to your account or which can be obtained by logging into their DCP account at LA457.com (select Plan Details > Forms) or by calling 844-523-2457.

Can I make additional payments?

Yes, you have the option of making additional payments as follows:

• Accelerated Payments—You are able to make future loan payments (not to exceed 90 days) to avoid your loan from defaulting if you are planning a leave of absence. However, if you choose this option and your leave of absence is longer than 90 days, you will need to make additional payments or complete a Leave of Absence Form. Please consult with a DCP representative for more information regarding specific conditions which may apply depending on the type of leave being taken. Accelerated Payments must be equal to the bi-weekly or monthly payment amounts.
• Principal Reduction Payments—You are able to make payments on the principal, which will shorten the length of your loan and reduce interest paid back to your account. Interest will continue to accrue and be debited from future loan payments according to the fixed amortization schedule generated upon the loan's origination; the schedule does not re-amortize upon making additional Principal Reduction Payments.
• Loan Payoff—You are able to pay off your total loan balance in full anytime. There is no early repayment penalty. To receive the loan payoff amount (principal due plus outstanding interest), you can log in to your account or call the Service Center at 844-523-2457. The loan payoff amount is valid for 30 days. You can also complete a Loan Payment Request Form and send your payment as directed on the form. Additional payments may be made via cashier’s check, money order, or personal check.
• Past-Due Payments—You are able to make any missed payments to bring your account current. The payments must be equal to the bi-weekly or monthly payment amounts. You will need to call the Service Center to confirm the payment amount and due date needed to bring your loan current. We will send you a late notice; however, you are ultimately responsible for making your loan payments. If you allow your loan to default, the outstanding loan balance, plus interest, will be reported as additional taxable income and you will receive a 1099 tax form to report income on your tax return.

What happens if I take a leave of absence?

Please contact a Local Retirement Counselor at 213-978-1601 immediately prior to going on a leave of absence to discuss your loan options. They can also assist you if you have an active loan and are not being paid or you have noticed that the loan payment is not being taken from your check. This can help to ensure that your loan does not go into default. If timely payments are not received, your loan will go into default, meaning the outstanding loan balance, plus interest, will be reported as additional taxable income. You must complete a Leave of Absence Form before and after your leave, or otherwise send in manual payments in a timely manner, to prevent default. Keep in mind, you are ultimately responsible for making your loan payments or timely providing notification to the DCP within specified due dates.

What happens if I separate from City service but still have an outstanding loan?

When you separate from employment with the City, you have three options for managing your loan:

• Continue making loan repayments—Your loan will be automatically converted from bi-weekly to monthly payments. Payments may be made via cashier’s check, money order, or personal check. You will also receive a notification from Voya for an option to have your loan payments deducted from your checking or savings account.
• Pay your loan in full—You can pay your loan off anytime by logging in to your DCP account. You can also complete a Loan Payment Request Form and send your payment as directed on the form.
• Cease loan payments—If you choose to stop making loan payments, your outstanding loan balance will be treated as a full distribution. Full distributions are taxable events, and a 1099 tax form will be issued so you can report the distribution as taxable income.

If you have any questions or need assistance, contact a Local Retirement Counselor.

Can I still apply for new loans after I separate from City service?

Yes, you are still eligible to apply for new loans. However, keep in mind that you can also make taxable distributions from your account after you separate from City service. Learn more about distributions.