- 23 -
forth in Rev. Rul. 69-494, supra,8 and therefore the plan met the
exclusive benefit rule.
In further support of its contention that the loan did not
violate the exclusive benefit rule, petitioner asserts that the
loan was not a violation of fiduciary standards--it provided a
fair return, left the plan sufficiently liquid to permit
distributions, and embodied safeguards which a prudent investor
would expect. Thus, petitioner contends, Mr. Shedd met the
fiduciary standards of section 404(a)(1),9 of title I of the
8 In Rev. Rul. 69-494, 1969-2 C.B. 88, the Commissioner set
forth the following four general requirements that must be met
before an investment of funds from a qualified plan in employer
stock or securities will satisfy the exclusive benefit rule of
sec. 401(a): (1) The cost must not exceed fair market value at
the time of purchase; (2) a fair return commensurate with the
prevailing rate must be provided; (3) sufficient liquidity must
be maintained to permit distributions in accordance with the
terms of the plan; and (4) the safeguards and diversity that a
prudent investor would adhere to must be present. Rev. Rul. 73-
532, 1973-2 C.B. 128, extended the reasoning of Rev. Rul. 69-494,
supra, to investments not involving employer securities.
9 Sec. 404(a)(1) of the Employee Retirement Income Security
Act of 1974 (ERISA), Pub. L. 93-406, 88 Stat. 877, provides as
follows:
Sec. 404.(a)(1) Subject to sections 403(c) and (d),
4042, and 4044, a fiduciary shall discharge his duties with
respect to a plan solely in the interest of the participants
and beneficiaries and--
(A) for the exclusive purpose of:
(i) providing benefits to participants and
their beneficiaries; and
(ii) defraying reasonable expenses of
administering the plan;
(B) with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent
(continued...)
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