EBSA proposes amendments to PTE 80-26 involving plan/IRA guarantees of payments and loans

The Employee Benefits Security Administration (EBSA) has proposed an amendment to Prohibited Transaction Class Exemption (PTE) 80-26 that would provide retroactive and temporary exemptive relief for certain guarantees of the payment of debits to plan investment accounts and individual retirement accounts (IRAs) by parties in interest and certain loans and loan repayments made pursuant to the guarantees.

Retroactive and temporary relief

The proposed amendment, which was requested by the Securities Industry and Financial Markets Association (SIFMA), would provide relief for “covered extensions of credit.” EBSA defines a “covered extension of credit” as an indemnification agreement, cross-collateralization agreement, or other grant of a security interest in favor of a financial institution, as set forth in an account opening agreement between a plan and the financial institution, under which assets in a plan account guarantee the payment of amounts debited to a related account, or assets in a related account guarantee the payment of amounts debited to a plan account. An “account opening agreement” means a written brokerage, futures or other investment agreement.

Retroactive and temporary relief is also proposed for the lending of money (covered loan) by a related account to a plan account, pursuant to a covered extension of credit, if the related account is not itself a plan account. Finally, the retroactive and temporary relief would extend to the repayment by a plan account to a related account of a covered loan.

EBSA has also included retroactive relief from ERISA §406(b)(1) and Code Sec. 4975(c)(1)(E) to cover the situation in which a plan fiduciary entered into an indemnification agreement that would have permitted the payment of debits by a plan account to a related account maintained by the plan fiduciary.

However, EBSA is not proposing permanent prospective exemptive relief for covered extensions of credit (and loans and loan repayments), as requested by SIFMA, because SIFMA did not propose sufficient conditions.

Effective date

If adopted, the proposed amendment would be effective from January 1, 1975 until six months after the date on which the adopted amendment is published in the Federal Register. EBSA is proposing the relief described above solely to enable financial institutions to remove covered extensions of credit from account opening agreements and conclude any outstanding covered loans that may exist.

EBSA has also proposed, on its own motion, two other amendments to PTE 80-26.

Source: EBSA proposed amendment to Prohibited Transaction Class Exemption (PTE) 80-26.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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