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Loan FAQ

Typical processing time for a loan is 5 to 7 business days. However, in cases where vesting applies, where information is missing or for special handling requests, the processing time may be longer.

No. Under a special federal tax requirement, if the loan is secured by a tax deferred retirement account, interest paid on the loan is not tax-deductible. This is true even if interest would otherwise be deductible under federal law. Participants may wish to consult their tax adviser for additional information.

Once the loan is issued, the participant will receive a billing statement each quarter that shows the scheduled payment, payment due date, and a loan payoff quote. Payments on a loan are due on the scheduled date, whether or not the participant has received the payment coupon.

Some employers do have agreements with AIG Retirement Services to offer their employees the option of payroll deductions for loan repayments.

No. AIG Retirement Services must default on all loans in which payments have not been received 90 days from the last due date. The 90-day rule is regulated and enforced by the IRS.

For the participant’s convenience, a bill with a self-addressed envelope will be sent to the participant’s address 35 days before the scheduled payment. Send loan payments to:

Annuity Policy Loans:
Variable Annuity Life Insurance Company
32300 Collection Center Drive
Chicago, IL 60693-0323
 

Mutual Fund Plan Loans:
AIG Retirement Services
C/O J.P. Morgan Chase 
Po Box 301463
Dallas, TX 75305-1463

All insufficient funds (NSF) checks are processed through the participant’s bank twice. If the check is insufficient a second time, the check will be returned to the AIG Retirement Services Loans Processing Unit. The participant’s account will be placed on administrative suspense. Then, the participant will be sent a letter containing the original check and requesting that the participant send AIG Retirement Services a new check to replace the NSF check. If the participant does not respond to the letter within 30 days, the loan payment will be reversed from the participant’s account. When AIG Retirement Services receives the participant’s replacement check, AIG Retirement Services will send the participant a letter confirming the receipt of payment.

Although AIG Retirement Services has received a loan payment, it might not clear the participant’s bank if it has “special processing instructions,” known as "restrictive information" on it. Restrictive information can include statements such as "paid in full," “final payment," etc.
 

If the loan payment check contains restrictive information, it might take two weeks or longer for it to clear the participant’s bank account. If two weeks or longer has passed and the check has not cleared the participant’s bank account, the participant should consider placing a stop payment on the check and issuing a replacement check.

A participant may make payments in excess of the scheduled quarterly payment and excess payments will be applied to reduce the loan principal. Depending on the amount of the excess payment paid each quarter, the term of the loan may be reduced.
 

AIG Retirement Services has a policy to apply quarterly payments made in an amount in that exceeds the payment due first to the current quarterly payment amount due and any excess to the following quarterly payment due. Any amount remaining after applying the payment to the next two quarters will be applied to the outstanding principal balance of the loan. For example, if a participant had a quarterly payment of $1,000.00 but made a payment of $5,000.00, the participant might believe that the participant did not owe another payment for the next five quarters. That is not how it would work. The $5,000 amount would be applied first to the current quarter’s payment of $1,000 and then to the next quarter’s payment of $1,000. The remaining $3,000 would be applied to the outstanding principal loan balance. On the third quarterly payment due date from the date the participant in our example paid $5,000, the participant would again be required to make a $1,000 payment to remain current. In our example, the $5,000 payment would not be applied to the next five quarterly payments.

There are several reasons why a check would be returned. The account could have been surrendered or a death claim could have been made on the account. In both cases the loan could have been terminated in the process. Sometimes, participants continue to mail in payments after their loan has been fully paid. These monies, or over payment, are returned to the participant. Additionally, if a loan is in default and the participant sends in a partial payment, these funds will be returned to the participant with a notation on the check that the loan is in default. We are not able to accept partial payments on a defaulted loan, only checks for the full payoff of a defaulted loan are not returned.

Only participants who have met a distributable event are allowed to withdraw from their retirement account. A distributable event is defined in the participant’s plan document.

Loan Defaults

The IRS regulations regarding defaulted loans are very strict. Once a loan has been defaulted, AIG Retirement Services must report the outstanding loan balance plus the interest due at the time of default to the IRS as taxable income in the year of default. This amount will be subject to regular income taxes for that tax year. In addition, if the participant is under the age of 59 ½, an additional 10% federal early withdrawal tax penalty may apply.
 

AIG Retirement Services must continue to charge interest on the restricted portion of the loan balance until the loan is paid in full or the participant meets a distributable event and the loan is fully foreclosed.

No. Due to new IRS regulations, AIG Retirement Services can no longer accept a delay request by the participant. The payment must be received no more than 90 days after the due date.

The IRS has established strict guidelines regarding policy loans against retirement accounts, requiring that payments be made throughout the duration of the loan. A defaulted loan cannot be reinstated unless a clear AIG Retirement Services error resulted in the loan default.

When a loan is defaulted, AIG Retirement Services is able to "fully foreclose" on that loan if the loan was secured solely with pre 1989 unrestricted funds. If the loan was secured using 1988 restricted funds, AIG Retirement Services can only fully foreclose the loan when the participant has met a distributable event. This means that the status of the loan will be "defaulted," and will have a remaining balance until the participant either pays off the loan or the loan is fully foreclosed after the participant meets a distributable event.

In accordance with prudent lending practices, it is AIG Retirement Services's policy to not grant new loans to participants with outstanding (unforeclosed) defaulted loans until such time as these debts have been repaid or can be fully foreclosed. Defaulted loans must be paid with outside funds. A new loan cannot be taken to pay off a defaulted loan.