Strange Defined Contribution question understand, statements, following, regarding

sdada

Hi,
Please refer to the following question.
Which of the following statements are correct regarding a participant-directed defined contribution plan?
Statement 1: The plan should be responsible for establishing and revising the interest rate for plan loans to participants.
Statement 2: The plan should provide criteria for manager/fund selection, termination and replacement.
According to Schweser notes both of them are correct, which I can’t believe.
Please help me understand them.
Thanks,
MG.

cross-ied

I’ve heard of people taking out loans against their 401(k), but I didn’t know there was an interest rate involved. I just knew if you didn’t pay it back in time you were heavily taxed.

thecfawannabe

Bloomberg charges interest on its DB plan.
Edit: meaning it charges an interest if an employee takes out a loan for a certain period of time.

Flok

In my previous position I dealt with 401k plans as my focus.
Many companies offer loans from their 401k plan and the interest rate is always decided by the trustees of the plan. Usually they select prime + some number, like 3%.
When employees pay back those loans, the interest amount is credited to their own account. So it’s not like the company, or the 401k provider is making any interest on the deal.
It is really a company preference to offer loans or not. They are kind of a pain to deal with (lots of restrictions regarding amounts, payback periods, etc.). And the whole aspect of taking a loan from your retirement account is not usually a good idea (losing the compounding ability and all that).
Basically, both of the answers are true. I guarantee it!

LPoulin133

Thanks folks.