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DOL Allows Loans To Plans Facing Liquidity Problems

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DOL Allows Loans To Plans Facing Liquidity Problems

By Steven Brostoff


Insurance companies will be able to provide interest-free loans to pension plans facing short-term liquidity problems under a Labor Department action.

The action, announced on Sept. 26, permits pension plans to receive interest-free loans from “interested parties,” including insurers that provide service to pension plans, with repayment periods of up to 120 days as a way to address liquidity problems stemming from the Sept. 11 attacks.

The action is retroactive to loans beginning on Sept. 11 and will remain in effect until Jan. 9, 2002.

The loan will be permitted if no interest or fee is charged to the plan, and the proceeds are used only for purposes incidental to the ordinary operation of the plan.

In addition, the loan would have to address difficulties in liquidating or accessing assets resulting from the attacks.

In its notice, the Labor Department said the attacks led to temporary disruptions in the financial and securities markets that may affect pension plans.

“Temporary impairments to communication systems, pricing and valuation operations and marketplace liquidity could interfere with the operation of employee benefit plans,” DOL said.

For example, satisfaction of a plan participants withdrawal instructions may require the plan fiduciary to liquidate portfolio assets during a period of fluctuating market conditions, DOL said.

The proposal, DOL said, would provide plans with added flexibility in satisfying participant withdrawal requests.

The American Council of Life Insurers requested the relief.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 8, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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