Amendment to Prohibited Transaction Exemption 80-26

[Federal Register: March 1, 2002 (Volume 67, Number 41)]
[Notices]
[Page 9485-9487]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01mr02-83]

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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

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