Labor Department Proposes Exemption Relief Allowing Plan Loans and Extensions of Credit Necessary after Terrorist Attacks

Archived News Release — Caution: Information may be out of date.

Washington, DC - The U.S. Department of Labor’s Pension and Welfare Benefits Administration (PWBA) will publish on Friday a proposed amendment to an existing class exemption which would allow plans to receive interest free loans and extensions of credit from related parties. The proposal is designed to address problems faced by plans as a result of the terrorist attacks which occurred September 11, 2001.

As a result of terrorist attacks on the World Trade Center and the Pentagon, all major stock markets in the United States were closed from September 11 to September 14, 2001. Among other things, the shutdown prevented buying, selling and/or trading of securities on these markets. In addition, temporary impairments to communication systems, pricing and valuation operations, and marketplace liquidity, may have interfered with the operations of employee benefit plans.

The September 11, 2001 incidents may have caused temporary cash flow problems that affect essential plan operations. Interest free loans or extensions of credit could be used to facilitate transfers of all or part of participants’ accounts from one investment option to another, participant loans, temporary overdraft protection, or participant withdrawal requests.

The proposed exemption would allow plans to receive temporary loans and extensions of credit from related parties, like employers, if certain conditions are met. This action amends an existing exemption -- Prohibited Transaction Exemption 80-26 -- and is similar to an amendment granted in 2000 in anticipation of Y2K problems. The department has authority to provide administrative exemptions for transactions which otherwise would be forbidden under the Employee Retirement Income Security Act (ERISA).

The conditions of the exemption -- which are identical to PTE 80-26 -- would allow loans and extensions of credit for no more than 120 days, beginning September 11, 2001. All loans must be repaid by January 9, 2002. 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 September 11 terrorist attacks
• The loans or extension of credits are not directly or indirectly made by a plan

Written comments and requests to hold a public hearing should be submitted within 45 days to the Office of Exemption Determinations, Pension and Welfare Benefits Administration, Room N-5649, U. S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D. C. 20210, Attention: PTE 80-26 Amendment.

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