Jean Posted August 1, 2002 Share Posted August 1, 2002 How do you feel about a plan issuing participant loans at a 0% interest rate? Link to comment Share on other sites More sharing options...
MGB Posted August 1, 2002 Share Posted August 1, 2002 How about "illegal"? ErisaGooroo 1 Link to comment Share on other sites More sharing options...
Alan Simpson Posted August 1, 2002 Share Posted August 1, 2002 The DOL's opinion is that the interest rate for loans must be consistent with interest rates charged by commerical lenders for a loan made under similar circumstances (DOL Reg 2550-408b-1(e)). Their view is that this is no justification for using below market interest rates. Link to comment Share on other sites More sharing options...
mbozek Posted August 2, 2002 Share Posted August 2, 2002 There are a number of reasons why plan loans cant be offerred at 0% interest - IRC and Dol rules require a reasonable rate of interest so that the the loan is not considered a disguised distribution. Also the PT rules forbid benefitting a party in interest at the expense of the plan. In additon IRC 7872 imputes income to the borrower on below market rate loans and has recently been applied to split dollar life insurance. Dont know if 7872 would apply to a plan loan but I dont want to find out either. mjb Link to comment Share on other sites More sharing options...
actuarysmith Posted August 2, 2002 Share Posted August 2, 2002 Can you say "prohibited transaction"? Loans to participants are excempt from the PT rules only if they adhere to certain parameters. One is that they bear a reasonable rate of interest. Do you know of any commercial lender anywhere that offers a 0% interest rate on loans? Link to comment Share on other sites More sharing options...
2muchstress Posted August 2, 2002 Share Posted August 2, 2002 How 'bout 0% for the first six months, the a standard rate of 9.9% plus prime. Seems to be the commercial rate in my mail everyday. Link to comment Share on other sites More sharing options...
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