Blogging Employee Benefits

April 7, 2006

3-Day Limit Removed for Interest-Free Loans to Plans

Filed under: DOL, PTEs — Fuguerre @ 6:36 am

The Department of Labor has revised PTE 1980-26 to remove its 3-day limit on interest-free loans to employee benefit plans from a disqualified person or party in interest, such as an employer or union sponsor. [71 FR 17917] The class exemption, intended to permit the plan to deal with liquidity problems for ordinary operating expenses or purposes incidental to the ordinary operation of the plan, provides relief from prohibited transaction restrictions of ERISA §406 and related taxes under IRC §4975.

Under the amended PTE, an interest-free loan may be made to a plan for a period extending beyond 3 days, provided the remaining conditions of PTE 1980-26 are met. Loans made on or after 12/15/04 involving a purpose incidental to the ordinary operation of the plan must be made pursuant to a written loan agreement containing all of the loan's material terms if the term of the loan extends 60 days or more. For loans involving the payment of the plan's ordinary operating expenses, the written loan agreement requirement for loans extending 60 days or more applies prospectively for loans made on or after 4/7/06.

PTE 1980-26 has also been clarified to preclude relief for a loan to an ESOP to the extent that the loan relates to the ESOP's acquisition of employer securities.


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