October 11, 1989
TO: PENSION MEMBERS NO. 47-89
RE: DEPARTMENT OF LABOR ADVISORY OPINION CLARIFYING FINAL
REGULATION CONCERNING PLAN LOANS
__________________________________________________________
As we previously advised, the U.S. Department of Labor
issued a final regulation in July 1989 under section 408(b)(1) of
ERISA, which provides that the prohibited transaction provisions
of section 406 shall not apply to loans by a plan to parties in
interest who are participants and beneficiaries of the plan under
certain circumstances. (See Institute Memorandum to Pension
Members No. 35-89, dated July 31, 1989.)
In order to qualify under paragraph (A) of section
408(b)(1), loans must be made available to all such participants
and beneficiaries on a reasonably equivalent basis. In the
attached advisory opinion, the Department of Labor states that it
does not interpret this condition to require that participant
loan programs be made available to all participants and
beneficiaries, regardless of their status as parties in interest.
Instead, this provision requires that loans be made available to
all participants and beneficiaries who are parties in interest on
a reasonably equivalent basis.
We will keep you informed of further developments.
Kathy D. Ireland
Associate General Counsel
Attachment