[17055]
February 5, 2004
TO: PENSION MEMBERS No. 9-04
PENSION OPERATIONS ADVISORY COMMITTEE No. 10-04
RE: PLAN LOANS UNDER THE SERVICEMEMBERS CIVIL RELIEF ACT OF 2003
On December 19, 2003, President Bush signed the Servicemembers Civil Relief Act of
2003, which restates, clarifies, and revises the Soldiers’ and Sailors’ Civil Relief Act of 1940.1 The
2003 Act continues the six percent interest rate limitation on loans incurred by servicemembers
prior to their military service, which the U.S. Department of Labor has interpreted to apply to
plan loans.2
The Act is applicable to members of the uniformed services on active duty as well as
members of the National Guard that are in service under a call to active service authorized by
the President or the Secretary of Defense for a period of more than 30 consecutive days. Under
section 207 of the Act, any obligation or liability bearing interest at a rate in excess of six percent
per year that is incurred before the servicemember enters military service cannot bear an
interest rate over six percent during the period of military service.
In order to trigger this provision, the servicemember must provide written notice to the
creditor along with a copy of his or her military orders not later than 180 days after the date of
termination or release from military service. Upon receipt of the written notice, the creditor
must treat the loan as subject to the six percent limitation effective as of the date the member
was called to military service. Interest in excess of six percent must be forgiven and not merely
postponed, and the term “interest” includes service charges, renewal charges, fees, or any other
charges with respect to the loan. A creditor may obtain relief from the provision through a
court‘s finding that the ability of the servicemember to pay interest in excess of six percent is
“not materially affected by reason of the servicemember’s military service.”
Kathy D. Ireland
Senior Associate Counsel
1 The full text of the legislation can be found at
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_bills&docid=f:h100enr.txt.pdf.
2 The Department of Labor addressed the application of the Soldiers’ and Sailors’ Civil Relief Act of 1940 to plan
loans in its “Frequently Asked Questions for Reservists Being Called to Active Duty,” which can be found at
http://www.dol.gov/ebsa/faqs/faq_911_2.html.