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Secretary of Labor Thomas E. Perez
Amendment to Prohibited Transaction Exemption 80-26 (PTE 80-26) for Certain Interest Free Loans to Employee Benefit Plans [Notices] [03/01/2002]

EBSA (Formerly PWBA) Federal Register Notice

Amendment to Prohibited Transaction Exemption 80-26 (PTE 80-26) for Certain Interest Free Loans to Employee Benefit Plans [03/01/2002]

[PDF Version]

Volume 67, Number 41, Page 9485-9487

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2002-14 Application Number D-11034]

 
Amendment to Prohibited Transaction Exemption 80-26 (PTE 80-26) 
for Certain Interest Free Loans to Employee Benefit Plans

AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.

ACTION: Adoption of amendment to PTE 80-26.

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SUMMARY: This document amends PTE 80-26, a class exemption that permits 
parties in interest with respect to employee benefit plans to make 
interest free loans to such plans, provided the conditions of the 
exemption are met. The amendment affects all employee benefit plans, 
the participants and beneficiaries of such plans, and parties in 
interest with respect to those plans engaging in the described 
transactions.

DATES: The amendment is effective from September 11, 2001 until January 
9, 2002.

FOR FURTHER INFORMATION CONTACT: Christopher Motta, Office of Exemption 
Determinations, Pension and Welfare Benefits Administration, U.S. 
Department of Labor, (202) 693-8544. (This is not a toll-free number); 
or Charles Jackson, Plan Benefits Security Division, Office of the 
Solicitor, U.S. Department of Labor, (202) 693-5600. (This is not a 
toll-free number).

SUPPLEMENTARY INFORMATION: On September 28, 2001, notice was published 
in the Federal Register (66 FR 49703) of the pendency before the 
Department of a proposed amendment to PTE 80-26 (45 FR 28545, April 29, 
1980, as amended at 65 FR 17540, April 3, 2000).\1\ PTE 80-26 provides 
an exemption from the restrictions of section 406(a)(1)(B) and (D) and 
section 406(b)(2) of the Employee Retirement Income Security Act of 
1974 (ERISA or the Act) and from the taxes imposed by section 4975(a) 
and (b) of the Internal Revenue Code of 1986 (the Code), by reason of 
section 4975(c)(1)(B) and (D) of the Code.
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    \1\ A minor correction was made to the title of the final 
exemption in a notice published in the Federal Register on May 23, 
1980. (45 FR 35040).
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    The amendment to PTE 80-26 adopted by this notice was proposed by 
the Department on its own motion pursuant to section 408(a) of ERISA 
and section 4975(c)(2) of the Code, and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 
32847, August 10, 1990).\2\
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    \2\ Section 102 of the Reorganization Plan No. 4 of 1978 (5 
U.S.C. App. 1 [1996]) generally transferred the authority of the 
Secretary of the Treasury to issue administrative exemptions under 
section 4975 of the Code to the Secretary of Labor.
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    The notice of pendency gave interested persons an opportunity to 
comment or to request a hearing on the proposed amendment. No public 
comments or requests for a hearing were received.
    For the sake of convenience, the entire text of PTE 80-26, as 
amended, has been reprinted with this notice.

Description of the Exemption

    Section I of PTE 80-26 permits the lending of money or other 
extension of credit from a party in interest or disqualified person to 
an employee benefit plan, and the repayment of such loan or other 
extension of credit in accordance with its terms or other written 
modifications thereof, if:
    (a) No interest or other fee is charged to the plan, and no 
discount for payment in cash is relinquished by the plan, in connection 
with the loan or extension of credit;
    (b) The proceeds of the loan or extension of credit are used only--
    (1) For the payment of ordinary operating expenses of the plan, 
including the payment of benefits in accordance with the terms of the 
plan and periodic premiums under an insurance or annuity contract, or
    (2) For a period of no more than three days, for a purpose 
incidental to the ordinary operation of the plan;
    (c) The loan or extension of credit is unsecured; and
    (d) The loan or extension of credit is not directly or indirectly 
made by an employee benefit plan.
    On April 3, 2000, PTE 80-26 was amended through the addition of

[[Page 9486]]

sections II and III to that exemption (65 FR 17540). Section II of PTE 
80-26 allowed, from November 1, 1999 through December 31, 2000, the 
lending of money or other extension of credit from a party in interest 
or disqualified person to an employee benefit plan, and the repayment 
of such loan or other extension of credit in accordance with its terms 
or written modifications thereof; provided that, among other 
requirements, the proceeds of the loan or extension of credit are used 
only for a purpose incidental to the ordinary operation of the plan 
which arises in connection with the inability of the plan to liquidate, 
or otherwise access its assets or access data, as a result of a ``Y2K 
problem''. Section III of PTE 80-26, as amended, provides a definition 
of the term ``Y2K problem''.
    The amendment to PTE 80-26 granted pursuant to this notice 
temporarily broadens the availability of PTE 80-26 to include certain 
interest-free loans to be used for a purpose incidental to the ordinary 
operations of a plan which arises in connection with difficulties 
encountered by the plan in liquidating, or otherwise accessing its 
assets, or accessing its data in a timely manner as a direct or 
indirect result of the September 11, 2001 disruption to the financial 
markets. The amendment to PTE 80-26 permits these loans to the extent 
such loans are repaid no later than January 9, 2002.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of ERISA and section 4975(c)(2) of the Code does 
not relieve a fiduciary, or other party in interest or disqualified 
person with respect to a plan, from certain other provisions of ERISA 
and the Code, including any prohibited transaction provisions to which 
the exemption does not apply and the general fiduciary responsibility 
provisions of section 404 of ERISA which require, among other things, 
that a fiduciary discharge his or her duties respecting the plan solely 
in the interests of the participants and beneficiaries of the plan; nor 
does it affect the requirement of section 401(a) of the Code that the 
plan must operate for the exclusive benefit of the employees of the 
employer maintaining the plan and their beneficiaries;
    (2) This exemption does not extend to transactions prohibited under 
section 406(b)(1) and (3) of the Act or section 4975(c)(1)(E) or (F) of 
the Code;
    (3) In accordance with section 408(a) of ERISA and 4975(c)(2) of 
the Code, the Department makes the following determinations:
    (i) The amendment set forth herein is administratively feasible;
    (ii) The amendment set forth herein is in the interests of plans 
and of their participants and beneficiaries; and
    (iii) The amendment set forth herein is protective of the rights of 
participants and beneficiaries of plans;
    (4) The amendment is applicable to a particular transaction only if 
the transaction satisfies the conditions specified in the exemption; 
and
    (5) The amendment is supplemental to, and not in derogation of, any 
other provisions of ERISA and the Code, including statutory or 
administrative exemptions and transitional rules. Furthermore, the fact 
that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction.

Exemption

    Accordingly, PTE 80-26 is amended under the authority of section 
408(a) of the Act and section 4975(c)(2) of the Code and in accordance 
with the procedures set forth in 29 CFR part 2570, subpart B (55 FR 
32836, 32847, August 10, 1990), as set forth below:

Section I. General Exemption

    Effective January 1, 1975, the restrictions of section 406(a)(1)(B) 
and (D) and section 406(b)(2) of the Act, and the taxes imposed by 
section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(B) 
and (D) of the Code, shall not apply to the lending of money or other 
extension of credit from a party in interest or disqualified person to 
an employee benefit plan, nor to the repayment of such loan or other 
extension of credit in accordance with its terms or written 
modifications thereof, if:
    (a) No interest or other fee is charged to the plan, and no 
discount for payment in cash is relinquished by the plan, in connection 
with the loan or extension of credit;
    (b) The proceeds of the loan or extension of credit are used only--
    (1) For the payment of ordinary operating expenses of the plan, 
including the payment of benefits in accordance with the terms of the 
plan and periodic premiums under an insurance or annuity contract, or
    (2) For a period of no more than three business days, for a purpose 
incidental to the ordinary operation of the plan;
    (c) The loan or extension of credit is unsecured; and
    (d) The loan or extension of credit is not directly or indirectly 
made by an employee benefit plan.

Section II: Temporary Exemption

    Effective November 1, 1999 through December 31, 2000, the 
restrictions of section 406(a)(1)(B) and (D) and section 406(b)(2) of 
the Act, and the taxes imposed by section 4975(a) and (b) of the Code, 
by reason of section 4975(c)(1)(B) and (D) of the Code, shall not apply 
to the lending of money or other extension of credit from a party in 
interest or disqualified person to an employee benefit plan, nor to the 
repayment of such loan or other extension of credit in accordance with 
its terms or written modifications thereof, if:
    (a) No interest or other fee is charged to the plan, and no 
discount for payment in cash is relinquished by the plan, in connection 
with the loan or extension of credit;
    (b) The proceeds of the loan or extension of credit are used only 
for a purpose incidental to the ordinary operation of the plan which 
arises in connection with the plan's inability to liquidate, or 
otherwise access its assets or access data as a result of a Y2K 
problem.
    (c) The loan or extension of credit is unsecured;
    (d) The loan or extension of credit is not directly or indirectly 
made by an employee benefit plan; and
    (e) The loan or extension of credit begins on or after November 1, 
1999 and is repaid or terminated no later than December 31, 2000.

Section III. September 11, 2001 Market Disruption Exemption

    Effective September 11, 2001 through January 9, 2002, the 
restrictions of section 406(a)(1)(B) and (D) and section 406(b)(2) of 
the Act, and the taxes imposed by section 4975(a) and (b) of the Code, 
by reason of section 4975(c)(1)(B) and (D) of the Code, shall not apply 
to the lending of money or other extension of credit from a party in 
interest or disqualified person to an employee benefit plan, nor to the 
repayment of such loan or other extension of credit in accordance with 
its terms or written modifications thereof, if:
    (a) No interest or other fee is charged to the plan, and no 
discount for payment in cash is relinquished by the plan, in connection 
with the loan or extension of credit;
    (b) The proceeds of the loan or extension of credit are used only 
for a purpose incidental to the ordinary operation of the plan which 
arises in connection with difficulties encountered by the plan in 
liquidating, or otherwise accessing its assets, or

[[Page 9487]]

accessing its data in a timely manner as a direct or indirect result of 
the September 11, 2001 disruption;
    (c) The loan or extension of credit is unsecured;
    (d) The loan or extension of credit is not directly or indirectly 
made by an employee benefit plan; and
    (e) The loan or extension of credit begins on or after September 
11, 2001, and is repaid or terminated no later than January 9, 2002.

Section IV. Definitions

    (a) For purposes of section II, a Y2K problem is a disruption of 
computer operations resulting from a computer system's inability to 
process data because such system recognizes years only by the last two 
digits, causing a ``00'' entry to be read as the year ``1900'' rather 
than the year ``2000''.
    (b) For purposes of Section III, the September 11, 2001 disruption 
is the disruption to the United States financial and securities markets 
and/or the operation of persons providing administrative services to 
employee benefit plans, resulting from the acts of terrorism that 
occurred on September 11, 2001.

    Signed at Washington, DC, this 25th day of February, 2002.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations, Pension and Welfare 
Benefits Administration, Department of Labor.
[FR Doc. 02-4873 Filed 2-28-02; 8:45 am]
BILLING CODE 4510-29-P