Shareholder employee plan loan limitation

P/OPINION 75-105


                                                       406✓
                                                       408


                        November 20, 1975


Dear           :

Your letter of August 2, 1975, addressed to the
Regional Office of the Department of Labor, has been
referred to this office for reply. In your letter,
you inquire as to the legality of a proposed loan by
one or more plans of a professional corporation to a
physician employee shareholder who is also a participant,
party in interest and trustee of the plans. According to
your letter, the plans authorize loans to parties in
interest who are participants if the loans are made
available to all participants on a nondiscriminatory
basis, are adequately secured and bear a reasonable
rate of interest.

Section 406(a)(1)(B) of the Employee Retirement Income
Security Act of 1974 (the Act) prohibits the lending
of money or other extension of credit between a plan
and a party in interest of the plan. However, as you are
aware, the prohibitions of section 406 do not apply to loans
made by a plan to parties in interest who are participants
or beneficiaries of the plan if the enumerated conditions
of section 408(b)(1) of the Act are met.

It should be noted that section 408(d) makes section 408(b)
unavailable for transactions which involve a loan of any
part of the income or corpus of a plan to a shareholder-
employee (as defined in section 1379(d) if the Internal
Revenue Code of 1954) of the plan. Thus, the applicability
of section 408(b)(1) to the particular loan contemplated
in your letter depends, among other things, on whether
the proposed recipient is such a shareholder-employee
of the lending plan or plans. The trustees of the plan
are, of course, responsible for determining whether
the provisions of section 408(b)(1), or of any other
section of the Act, are applicable to the plan.

Sincerely,