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The U. S. Department of Labor’s Pension
and Welfare Benefits Administration (PWBA) today proposed an amendment to
an existing class exemption which would allow plans to receive interest free
loans and extensions of credit from related parties to pay for unanticipated
Y2K computer problems. Since 1998, PWBA has been providing guidance to the plan
community in an effort to help them prepare for their Y2K contingency
planning.
Employee benefit plans use computers to perform a
variety of calculations, including benefit calculations and payments,
eligibility, vesting, funding calculations, health claims processing, and plan
investments. The President’s Council on Year 2000 Conversion, in its
November 1999 quarterly assessment of the Year 2000 problem, reported a high
degree of confidence in the financial services sector, with available
information indicating that over 99 percent of this sector is Year 2000 ready.
Nevertheless, it remains possible that unanticipated Y2K related problems could
temporarily disrupt computer systems, and plan officials must, therefore,
develop contingency plans to assure continuity of plan operations.
Alan Lebowitz, Deputy Assistant Secretary of Labor
for PWBA said, "While the department believes that most plans will continue to
operate without interruption, our exemption gives plans access to additional
resources in prudently planning for all Y2K contingencies. If adopted, the
exemption will remove technical restrictions while protecting plan funds and
workers’ benefits from unanticipated problems associated with malfunction
of plan computers."
One side-effect of a possible Y2K disruption for
plans could be temporary cash flow problems or computer malfunctions that
affect essential plan operations. The interest free loans or extension 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 repairs to a plan’s internal
computer systems.
The proposed exemption would allow plans to
receive temporary loans and extensions of credit to meet Y2K contingencies if
certain conditions are met. This action amends an existing exemption —
Prohibited Transaction Exemption 80-26. 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 amendment, which are
identical to PTE 80-26, would allow loans and extensions of credit for no more
than 14 months, beginning 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.
Written comments and requests to hold a public
hearing should be submitted by Jan. 13, 2000 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: Y2K Interest Free Loans. |
