Do we need to adopt a loan policy?

Q & A from a former practicing ERISA attorney

Q: Do we need to adopt a loan policy?

A: 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.

About Joel Shiparo, 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.

Founded in the 1950s, Carroll Consultants, Ltd. provides investment advisory, retirement plan consulting and administration services to clients throughout the country. For further information about this article, please contact Marcie Carroll at or (610) 225-1210.