Custodia Financial Introduces Two Additional 401(k) Loan ‘Insurance’ Options

Custodia Financial is enhancing its Retirement Loan Eraser (RLE) program with two new, lower-cost coverage levels to meet the increased demand for a “safety net” protecting participants from 401(k) loan defaults, and to provide plan sponsors with more choice and flexibility.

The new options expand on Custodia Financial’s original Full Repayment option that repays a 401(k) borrower’s entire outstanding loan principal if he or she is laid off, becomes disabled or dies. Going forward, depending on the needs of an organization’s workforce, plan sponsors can choose this baseline coverage level or one of two new options:

Continuance: Six months of loan repayments following involuntary separation, providing a “bridge” while the borrower secures new employment; or

Continuance + Full Repayment: Six months of loan payments followed by full repayment if the participant remains unemployed.

Six months of loan payments provide a separated borrower with up to 12 months to get on their feet financially, as most plans offer “cure periods,” or grace periods, that extend until the last day of a calendar quarter following the calendar quarter when a missed payment was due.

While specific pricing varies by industry, the Continuance option is less than 40% of the cost the Full Repayment option, and the Continuance + Full Repayment option is roughly 80% of the cost of the Full Repayment option.

“With new legislation under the CARES [Coronavirus Aid, Relief and Economic Security] Act providing expanded access to retirement savings through 401(k) loans, 401(k) borrowers have never been more in need of a safety net to protect them from defaults caused by job loss,” says Tod A. Ruble, CEO of Custodia Financial. “Plan sponsors were already concerned about loan leakage, but the global pandemic and CARES Act have now put an unprecedented focus on this issue. We designed these new coverage levels to give participants the protection that the research tells us they’re asking for, while also giving plan sponsors the flexibility that they want for implementation.”