Katrina Loans

[Guest dietpepsi]

KETRA allows for loans up to the lesser of 100% of the account or $100,000. For loans over 50% of the vested account the plan must receive valuable collateral prior to granting the loan for the loan to avoid being a prohibited transaction and a deemed distribution. Since previously all the plans that I worked with were limited to 50% of the balance, how do you advise clients who want to know what collateral to get and what to do with it once they have it? Also, if the loan is defaulted upon, what is the plan suppose to do with the collateral? It's not like they would convert it to cash and give it back to the account of the participant that defaulted on the loan. Realistically, what are others telling their clients?

[E as in ERISA]

At the end of Announcement 2005-70, the DOL says "The Department of Labor ... will not treat any person as having violated the provisions of [ERISA] solely because they complied with the provisions of this Announcement." KETRA amends 72(p). 2005-70 says plans should follow 72(p) rules on loans but procedures can temporarily be relaxed. The DOL has indicated that the comment at the end of 2005-70 would apply to the change in the 50 percent limit based on those references to 72(p).