Personal guarantees of a plan loan can be prohibited transactions

Plain-English summary

Chief Counsel advised that a fiduciary or other disqualified person who personally guarantees a plan's indebtedness generally extends credit to the plan. The advice states that this is a prohibited transaction under IRC § 4975(c)(1)(B), unless a special employee stock ownership plan exemption applies. The email also refers to an ERISA Conference Report and two Department of Labor advisory opinions.

Ruling snapshot

• Question: Does a personal guarantee of a plan loan by a fiduciary or other disqualified person violate the prohibited-transaction rules?
• Outcome: Advice given.
• Key authorities: IRC § 4975(c)(1)(B); H.R. Rep. No. 1280, 93d Cong., 2d Sess., at 308 (1974); DOL Advisory Opinions 90-33A and 2009-03A.

Full text (IRS public release)

ID: CCA_2011012709442650 Number: 201108034
Release Date: 2/25/2011
Office: -------------------------
UILC: 4975.03-02

From: --------------------
Sent: Thursday, January 27, 2011 9:44:30 AM
To: -------------------------
Cc:
Subject: Guaranteeing a Loan

This is in response to your voice message.

With respect to the issue concerning signing personally as guarantors of a note, Congress stated in the ERISA Conference Report that, “…a prohibited transaction generally will occur if a loan to a plan is guaranteed by a party-in-interest [disqualified person], unless it comes within the special exemption for employee stock ownership plans.” H.R. Rep. No. 1280, 93d Cong., 2d Sess., at 308 (1974). Consequently, a guarantee of a plan’s indebtedness by a fiduciary or other disqualified person is an extension of credit to the plan in violation of section 4975(c)(1)(B) of the Code. See the attached DOL Advisory Opinion 90-33A (July 3, 1990) and DOL Advisory Opinion 2009-03A (October 27, 2009).