Hey Joel! - Do we need to adopt a loan policy?

Answers from a recovering former practicing ERISA attorney

Do you have a question for an ERISA attorney burning in your heart? Well, you’re not the only one! Welcome to our new Retirement Times feature, Hey Joel! We’re featuring plan sponsor questions from all over the country and answers from our in-house former practicing ERISA attorney.

Do we need to adopt a loan policy?

-       Confused in Connecticut

Dear Confused,

It is a plan/legal determination as to whether a separate loan policy is required. However, the following loan provisions should be documented:

1. The identity of the person authorized to administer the participant program;
2. The procedure for applying for loans;
3. The standards for approving or denying loans;
4. Any limitations on loan types or loan amounts;
5. The procedures used to determine a reasonable rate of interest;
6. The types of collateral that can be used to secure participant loans; and
7. The events constituting default and the steps necessary to preserve plan assets in the event of default.

This information may be contained either in the plan document itself or in a written document (such as a loan policy) forming part of the plan. [DOL Reg. § 2550.408b-1(d)]

Loan procedures are located at the end of the Summary Plan Description (SPD) and incorporated into the Basic Plan Document (BPD) by reference.

Always happy to lend a helping hand!

Joel Shapiro, JD, LLM

About Joel Shapiro, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.