Labor Department Announces Final Exemption On Interest Free Loans And Credit For Plan Y2k Problems

Archived News Release — Caution: Information may be out of date.

The U. S. Department of Labor’s Pension and Welfare Benefits Administration (PWBA) today finalized a temporary exemption allowing plans to receive interest free loans and extensions of credit from related parties to pay for unanticipated Y2K computer problems.

The exemption allows employee benefit plans to receive temporary loans and extensions of credit to meet Y2K contingencies if certain conditions are met. The exemption amends Prohibited Transaction Exemption 80-26. After reviewing public comments on the proposal, the department decided to issue a final exemption which is virtually identical to the proposal announced on Nov. 29, 1999.

The department has authority to provide administrative exemptions for transactions which otherwise would be forbidden under the Employee Retirement Income Security Act (ERISA).

PTE 00-14, which contains conditions identical to PTE 80-26, is effective for loans and extensions of credit of no more than 14 months, retroactive to Nov. 1, 1999. All loans must be repaid by Dec. 31, 2000. Among the conditions of the temporary exemption are requirements that:

— no interest or other fee is charged to the plan and no discount for payment in cash is relinquished by the plan;

— the loans and extensions of credit are unsecured;

— proceeds of the loans and extensions of credit are used only for purposes incidental to ordinary plan operations which are affected by the Y2K problem; and

— the loans or extensions of credits are not directly or indirectly made by a plan.

The final exemption is scheduled to be published in the April 3 Federal Register.

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Archived News Release — Caution: Information may be out of date.