Certain retirement plans may allow participants to request and receive a loan from their retirement accounts. However, such loans are treated as investments of plan assets and are required to bear a reasonable amount of interest. The Department of Labor (DOL) has issued guidance (DOL Regulation section 2550.408b-1(e)) defining a reasonable rate of interest. However, during a September 2011 phone forum regarding participant loans, an Internal Revenue Service (IRS) representative indicated that interest rates on participant loans of less than the prime rate plus 2% may not satisfy the "reasonableness" requirement of the Internal Revenue Code. This statement conflicts with the guidance previously issued by the DOL. In a recent edition of "Retirement News for Employers," the IRS clarified that plan sponsors should ask certain questions to determine whether an interest rate is reasonable, including what rates local banks are charging for similar loans to individuals with similar creditworthiness and collateral, and whether the plan rate is consistent with the local rates. The IRS also included examples from DOL guidance to demonstrate how the questions should be answered.