Compliance March 16, 2009

Plan Loans Exempt from Truth-in-Lending Disclosure

The Federal Reserve System's Board of Governors amended Regulation Z to exempt most retirement plan loans from the disclosure requirement of the federal Truth-in-Lending Act.
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Generally, the act requires lenders to provide borrowers with a disclosure form explaining the full cost of a loan if the amount financed is $25,000 or less and the lender has made more than 25 loans per year in both the current and preceding calendar years.

In explaining the change, the board noted that retirement plan loans to participants are substantially different from other loans because there is no third-party creditor imposing finance charges, According to the Employee Benefits Institute of America (EBIA). The interest and principal are reinvested in the participant’s own account.

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EBIA reported that the Board decided to exempt loans made by qualified plans subject to Code Section 401(a) if three conditions are met:

  • the loan must be made to a participant;
  • the loan must be from fully vested funds in the participant’s account;
  • the loan must be made in compliance with the requirements of the Internal Revenue Code (including but not limited to the requirements of Code Section 72).


The exemption also applies to loans made by Code Section 403(b) annuities and Code Section 457(b) governmental plans. The amended regulations become effective July 1, 2010.

The full amendment to Regulation Z can be found in the January 29 edition of the Federal Register.

Compliance March 15, 2009

Keller Rohrback Launches Another Stock Drop Investigation

There’s another stock drop suit brewing – and this one’s directed at Fannie Mae.
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According to a press release, Seattle-based ERISA litigator Keller Rohrback L.L.P. says it is investigating Federal National Mortgage Association (“Fannie Mae”) for potential violations of the Employee Retirement Income Security Act of 1974 (“ERISA’). The law firms says that its investigation focuses on investments in Company stock in the Federal National Mortgage Association Employee Stock Ownership Plan.
Using language that is almost boiler-plate in such announcements, Keller Rohrback says its investigation involves concerns that Fannie Mae and other administrators of the plan “…may have breached their ERISA-mandated fiduciary duties of loyalty and prudence to participants and beneficiaries of the Plan.’ The law firm says that a breach “…may have occurred if the fiduciaries failed to manage the assets of the Plan prudently and loyally by investing the assets in Company stock when it was no longer a prudent investment for participants’ retirement savings.’
Oh – and if you are a participant in the Fannie Mae Employee Stock Ownership Plan…and held company stock in the plan…they’d like to hear from you.
Keller Rohrback serves as lead and co-lead counsel in numerous ERISA class action cases, including cases against Enron, WorldCom, Marsh & McLennan, Merrill Lynch, Bear Stearns, and Wachovia.

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