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These Terms of Use ("Terms of Use") are made between the undersigned user ("you") and Lord, Abbett & Co. ("we" or "us"). They become effective on the date that you electronically execute these Terms of Use ("Effective Date").

A. You are a successful financial consultant that markets securities, including the Lord Abbett Family of Funds;

B. We have developed the Lord Abbett Intelligence System (the "Intelligence System"), a state of the art information resource that we make available to a limited community of broker/dealers through the Internet at a secure Web site (the "LAIS Site"); and

C. We wish to provide access to the Intelligence System to you as an information tool responsive to the demands of your successful business pursuant to these Terms of Use. Accordingly, you and we, intending to be legally bound, hereby agree as follows:]

1. Overview. · Scope. These Terms of Use (which we may amend from time to time) govern your use of the Intelligence System. · Revisions; Changes. We may amend these Terms of Use at any time by posting amended Terms of Use ("Amended Terms of Use") on the LAIS Site. Any Amended Terms of Use will become effective immediately upon posting. Your use of the Intelligence System after any Amended Terms of Use become effective will be deemed to constitute your acceptance of those Amended Terms of Use.We may modify or discontinue the Intelligence System at any time, temporarily or permanently, with or without notice to you. Purpose of the Intelligence System. The Intelligence System is intended to be an information resource that you may use to contribute to your business research. The Intelligence System is for broker/dealer use only; it is not to be used with the public in oral, written or electronic form. The information on the Intelligence System and LAIS Site is for your information only and is neither the tax, legal or investment advice of Lord Abbett or its third-party sources nor their recommendation to purchase or sell any security.

2. Your Privileges. · Personal Use. Your use of the Intelligence System is a nontransferable privilege granted by us to you and that we may deny, suspend or revoke at any time, with or without cause or notice. · Access to and Use of the Intelligence System. The User ID and password (together, an "Access ID") issued by us to you (as subsequently changed by you from time to time) is for your exclusive access to and use of the Intelligence System. You will: (a) be responsible for the security and use of your Access ID, (b) not disclose your Access ID to anyone and (c) not permit anyone to use your Access ID. Any access or use of the Intelligence System through the use of your Access ID will be deemed to be your actions, for which you will be responsible. · Required Technology. You must provide, at your own cost and expense, the equipment and services necessary to access and use the Intelligence System. At any time, we may change the supporting technology and services necessary to use the Intelligence System. · Availability. We make no guarantee that you will be able to access the Intelligence System at any given time or that your access will be uninterrupted, error-free or free from unauthorized security breaches.

3. Rights in Data. Our use of information collected from you will be in accordance with our Privacy Policy posted on the LAIS Site. Our compliance with our Privacy Policy will survive any termination of these Terms of Use or of your use of the Intelligence System.

4. Your Conduct in the Use of the Intelligence System. You may access, search, view and store a personal copy of the information contained on the LAIS Site for your use as a broker/dealer. Any other use by you of the Intelligence System and the information contained on the LAIS Site these Terms of Use is strictly prohibited. Without limiting the preceding sentence, you will not: · Engage in or permit any reproduction, copying, translation, modification, adaptation, creation of derivative works from, distribution, transmission, transfer, republication, compilation or decompilation, reverse engineering, display, removal or deletion of the Intelligence System, any portion thereof, or any data, content or information provided by us or any of our third-party sources in any form, media or technology now existing or hereafter developed, that is not specifically authorized under these Terms of Use.

· Remove, obscure or alter any notice, disclaimer or other disclosure affixed to or contained within the Intelligence System, including any copyright notice, trademark and other proprietary rights notices and any legal notices regarding the data, content or information provided through the Intelligence System.

· Create a hyperlink to, frame or use framing techniques to enclose any information found anywhere on the LAIS Site without our express prior written consent.

· Impersonate any person, or falsely state or otherwise misrepresent his or her affiliation with any person in connection with any use of the Intelligence System.

· Breach or attempt to breach the security of the Intelligence System or any network, servers, data, or computers or other hardware relating to or used in connection with the Intelligence System; nor (b) use or distribute through the Intelligence System software or other tools or devices designed to interfere with or compromise the privacy, security or use of the Intelligence System by others or the operations or assets of any person.

· Violate any applicable law, including, without limitation, any state federal securities laws. 5. Your Representations and Warranties. You hereby represent and warrant to us, for our benefit, as of the time of these Terms of Use and for so long as you continue to use the Intelligence System, that (a) you are, and will continue to be, in compliance with these Terms of Use and any applicable laws and (b) you are authorized to provide to us the information we collect, as described in our Privacy Policy.

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THE INTELLIGENCE SYSTEM, THE LAIS SITE AND ALL DATA, INFORMATION AND CONTENT ON THE LAIS SITE ARE PROVIDED "AS IS" AND “AS AVAILABLE” AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND. WITHOUT LIMITING THE PRECEDING SENTENCE, LORD ABBETT, ITS AFFILIATES, AGENTS, THIRD-PARTY SUPPLIERS AND LICENSORS, AND THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, DIRECTORS, OFFICERS AND SHAREHOLDERS (COLLECTIVELY, THE “LORD ABBETT GROUP”) EXPRESSLY DISCLAIM ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, AND NONINFRINGEMENT. YOU EXPRESSLY AGREE THAT YOUR USE OF THE LAIS SITE, THE INTELLIGENCE SYSTEM, AND THE DATA, INFORMATION AND CONTENT PRESENTED THERE ARE AT YOUR SOLE RISK AND THAT THE LORD ABBETT GROUP WILL NOT BE RESPONSIBLE FOR ANY (A) ERRORS OR INACCURACIES IN THE DATA, CONTENT AND INFORMATION ON THE LAIS SITE AND THE INTELLIGENCE SYSTEM OR (B) ANY TERMINATION, SUSPENSION, INTERRUPTION OF SERVICES, OR DELAYS IN THE OPERATION OF THE LAIS SITE OR THE INTELLIGENCE SYSTEM.

· Disclaimer Regarding Investment Research.

THE INTELLIGENCE SYSTEM INCORPORATES DATA, CONTENT AND INFORMATION FROM VARIOUS SOURCES THAT WE BELIEVE TO BE ACCURATE AND RELIABLE. HOWEVER, THE LORD ABBETT GROUP MAKES NO CLAIMS, REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY, TIMELINESS, COMPLETENESS OR TRUTHFULNESS OF SUCH DATA, CONTENT AND INFORMATION. YOU EXPRESSLY AGREE THAT YOU ARE RESPONSIBLE FOR INDEPENDENTLY VERIFYING YOUR INVESTMENT RESEARCH PRIOR TO FORMING YOUR INVESTMENT DECISIONS OR RENDERING INVESTMENT ADVICE. THE LORD ABBETT GROUP WILL NOT BE LIABLE FOR ANY INVESTMENT DECISION MADE BY YOU OR ANY OTHER PERSON BASED UPON THE DATA, CONTENT AND INFORMATION PROVIDED THROUGH THE INTELLIGENCE SYSTEM OR ON THE LAIS SITE.

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THIS SECTION 6 SHALL SURVIVE ANY TERMINATION OF THESE TERMS OF USE OR YOUR USE OF THE INTELLIGENCE SYSTEM..

7. Limitations on Liability.

NONE OF THE MEMBERS OF THE LORD ABBETT GROUP WILL BE LIABLE TO YOU OR ANY OTHER PERSON FOR ANY DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, SPECIAL OR EXEMPLARY DAMAGES (INCLUDING LOSS OF PROFITS, LOSS OF USE, TRANSACTION LOSSES, OPPORTUNITY COSTS, LOSS OF DATA, OR INTERRUPTION OF BUSINESS) RESULTING FROM, ARISING OUT OF OR IN ANY WAY RELATING TO THE INTELLIGENCE SYSTEM, THE LAIS SITE OR YOUR USE THEREOF, EVEN IF THE LORD ABBETT GROUP HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS SECTION 7 WILL SURVIVE ANY TERMINATION OF THESE TERMS OF USE OR YOUR USE OF THE INTELLIGENCE SYSTEM.

8. Miscellaneous Provisions.

· Governing Law. This Agreement will governed by and construed in accordance with the laws of the State of New York, without giving effect to applicable conflicts of law principles.

THE UNIFORM COMPUTER INFORMATION TRANSACTIONS ACT OR ANY VERSION THEREOF, ADOPTED BY ANY STATE, IN ANY FORM ("UCITA") WILL NOT APPLY TO THESE TERMS OF USE. TO THE EXTENT THAT UCITA IS APPLICABLE, THE PARTIES HEREBY AGREE TO OPT OUT OF THE APPLICABILITY OF UCITA PURSUANT TO THE OPT-OUT PROVISION(S) CONTAINED THEREIN.

The Intelligence System is not intended to be used by consumers, nor are the consumer protection laws of any jurisdiction intended to apply to the Intelligence System. You agree to initiate and maintain any action, suit or proceeding relating to these Terms of Use or arising out of the use of the Intelligence System exclusively in the courts, state and federal, located in or having jurisdiction over New York County, New York.

YOU HEREBY CONSENT TO THE PERSONAL JURISDICTION AND VENUE OF THE COURTS, STATE AND FEDERAL, LOCATED IN OR HAVING JURISDICTION OVER NEW YORK COUNTY, NEW YORK. YOU AGREE THAT YOU WILL NOT OBJECT TO A PROCEEDING BROUGHT IN YOUR LOCAL JURISDICTION TO ENFORCE AN ORDER OR JUDGMENT OBTAINED IN NEW YORK.

· Relationship of Parties. The parties to these Terms of Use are independent contractors and nothing in these Terms of Use will be construed as creating an employment relationship, joint venture, partnership, agency or fiduciary relationship between the parties.

· Notice. All notices provided under these Terms of Use will be in writing and will be deemed effective: (a) when delivered personally, (b) when received by electronic delivery, (c) one business day after deposit with a commercial overnight carrier specifying next day delivery, with written verification of receipt, or (d) three business days after having been sent by registered or certified mail, return receipt requested. We will only accept notices from you in English and by conventional mail addressed to: General Counsel Lord, Abbett & Co. 90 Hudson Street Jersey City, N.J. 07302-3973 We may give you notice by conventional mail or electronic mail addressed to the last mail or electronic mail address transmitted by you to us.

· Third-Party Beneficiaries. The members of the Lord Abbett Group are third-party beneficiaries of the rights and benefits provided to us under these Terms of Use. You understand and agree that any right or benefit available to us or any member of the Lord Abbett Group hereunder will also be deemed to accrue to the benefit of, and may be exercised directly by, any member of the Lord Abbett Group to the extent applicable.

· Survival. This Section 8 will survive any termination of these Terms of Use or your use of the Intelligence System. The undersigned hereby signs these Terms of Use. By electronically signing and clicking "Accept" below, these Terms of Use will be legally binding on me. To sign these Terms of Use, confirm your full name and enter your User ID and Password (as your electronic signature) in the fields indicated below and click the “I Accept” button.

 

Retirement Perspectives

A maze of rules applies to making and taking loans from employer-sponsored retirement plans. Take care to comply with them all.

Many employer-sponsored retirement plans, such as 401(k)s, permit participants to take one or more loans from their accounts. To plan participants who have been dutifully contributing to their retirement funds, these accounts may represent a tempting source of ready money at competitive interest rates. However, even though the borrower pays back the loan plus interest to the borrower’s own account, participants would be well advised to proceed with caution, since the participant may be viewed as, in effect, having lost much of the benefit of tax deferral on plan earnings (to the extent of the outstanding loans) that these plans generally provide.

As of the end of 2011, an estimated 21% of 401(k) plan participants who had access to a loan feature took one. The average unpaid loan balance among plan borrowers represented about 14% of their 401(k) account balances (net of the unpaid loan balances), according to Department of Labor (DOL) data. In aggregate, outstanding loan amounts were less than 2% of 401(k) plan assets in 2010 (the latest year for which data are available), according to DOL data.

Offering a loan provision is typically seen as a potentially useful plan benefit. After all, it provides plan participants with access to their account balance without being subject to current income taxes or penalties. But the consequences of this decision—both for the participant taking out the loan and the plan sponsor that offers the benefit—are not always clearly understood.

It should come as little surprise, then, that retirement-plan loans, like retirement plans themselves, are heavily regulated and rigorously monitored. For both sides of the transaction, there are pitfalls to be avoided. For participants, there are several caveats that they should consider before taking a loan from their retirement accounts—and the multiple rules they must follow once they do—if they are to avoid unwanted consequences. For plan sponsors, retirement-plan loans involve paying rigorous attention to fiduciary oversight and recordkeeping requirements to ensure compliance with government rules and regulations.

Under the Employee Retirement Income Security Act (ERISA) §408(b)(1) and the Internal Revenue Code (IRC) §72(p), loans are prohibited and may be treated as taxable distributions, respectively, unless certain requirements are met. Both the DOL and the Internal Revenue Service (IRS) have indicated that they are concerned about compliance with a number of rules governing loans. Nevertheless, a loan program structured correctly under the IRC can offer a number of advantages that are summarized below.



General rules and requirements

Essentially, the regulations exist to distinguish a tax-free plan loan from a taxable distribution. Plan loans are not taxable distributions unless they fail to satisfy the plan and IRC rules. A plan loan may in effect become a taxable withdrawal if it is not repaid according to the loan terms.

ERISA §408(b)(1) [and IRC §4975(d)(1)] allows for participant loans under the prohibited transaction rules, while §72(p) of the IRC contains the rules for taxation of participant loans. Here is a summary of the general requirements that apply to participant loans:

  • Loans must be available to all participants on a reasonable equivalent basis.
  • Loans may not be made available to highly compensated employees in an amount greater than the amounts made available to other participants.
  • Loans must be made in accordance with written plan provisions.
  • Loans must bear a “reasonable” rate of interest.
  • Loans must be adequately secured.
  • The maximum amount a participant may borrow is 50% of his or her vested account balance, or $50,000, whichever is less.
  • Loans are repayable within five years, except for loans to acquire the principal residence of the participant. Loans for a home purchase can have a significantly longer repayment period.
  • Principal and interest are amortized in level amounts payable not less than quarterly.
  • Loans must be made under the terms of a legally enforceable agreement, including the dates and amounts of the loan and repayment schedule.

As you can see, there are a number of rules to satisfy in order for a loan to not be treated as a taxable distribution at the time it is made. Failure to comply can have significant tax implications for the participant and consequences for the plan sponsor as well.

General economic/financial considerations

While the borrower does repay the borrower’s own plan account, there can nevertheless be some significant adverse financial effects that can arise in connection with the taking of a loan from the plan. Generally, any increase from time to time in the value of the assets in plan accounts accumulates on a tax-deferred basis, and the taking of a loan from the plan can have the practical effect of causing the participant to lose the benefit of that tax deferral. Participants should try to understand the potential tax and other economic ramifications surrounding a decision to take a loan (with the help of their own tax and other advisors, as they see fit) before proceeding with any decision to take a plan loan.

Consequences of a default

A 401(k) plan loan is commonly established on a five-year repayment schedule, with payments made at least quarterly. A plan can provide for a “cure” or grace period for missed payments, preventing a default. The maximum cure period allowed is the last day of the quarter following the missed payment. This gives the borrower the ability to defer payment due on June 30 of a given year to December 31 of the same year. The plan also has the option of implementing a shorter cure period.

Once the cure period has ended, the loan is in default, and, therefore, the plan generally must report the defaulted loan on IRS Form 1099-R. There are situations, including military service and “bona fide” leaves of absence, whereby a participant can defer or extend loan payments without incurring a default.

A plan loan that satisfies the requirements of §72(p) is not treated as a taxable distribution. However, should a plan participant fail to satisfy any loan requirements, a default will occur.

Defaulting on a plan loan can cause either a “deemed distribution” or a “loan offset.”

A loan offset occurs when the participant defaults on the loan upon experiencing a distributable event, such as separation from service, causing loan payments to be paid at a faster pace. The plan will offset the loan by reducing the participant’s account balance by the amount of the outstanding loan obligation. In other words, the loan is considered closed and no longer part of the participant’s account balance. The IRS considers an offset to be an actual distribution reportable as income on Form 1099-R. Moreover, the offset is subject to the 10% early distribution penalty unless an exception applies, if the participant is younger than 59½. A loan offset is generally treated as an eligible rollover distribution.

Often a plan is unable to offset a loan because the participant has not encountered a distributable event (e.g., separation from service) that would allow an offset. In such cases, the plan reports the defaulted loan as a “deemed distribution” and reports the transaction on Form 1099-R. Later, when the participant experiences a distributable event, the plan will offset the loan. A deemed distribution, such as the offset, is subject to the 10% early withdrawal penalty unless an exception applies, if the participant is younger than 59½. A deemed distribution, unlike an offset, is generally not eligible to be rolled over.

Potential plan disqualification

Although it’s not common, it is not outside the realm of possibility for a plan to be disqualified for mishandling participant loans. The IRS offers a correction program, the Employee Plans Compliance Resolution System, for handling loan problems. Further, the IRS also offers “fix-it” guides to help plan sponsors find, fix, and avoid common mistakes.

There are other basic rules that sponsors need to heed. Among them:

  • Plans can, but are not required to, permit more than one outstanding loan to the same participant at the same time.
  • Plans may, but are not required to, permit participants to make loan payments via payroll deduction.
  • Loan repayments can be suspended only for up to one year for a leave of absence that is not due to military leave.
  • A plan may require the spouse to consent to a loan.
  • Plans are permitted to set a minimum loan amount (often $1,000) at their discretion (subject to possible nondiscrimination concerns).
  • IRAs, including SIMPLE and SEP plans, are prohibited from allowing plan loans.
  • Loan origination and maintenance fees are common.
  • Plan loan rules are set forth in the plan document and Summary Plan Description.
  • Plan loans are often subject to particular IRS and DOL scrutiny during audits.

Conclusion

Offering a loan provision gives plan participants the ability to access their account potentially without being subject to taxes and/or penalties and to repay themselves at relatively low rates. But these loans are not a panacea. The tax implications of a loan default, the possibility of IRS penalties and sanctions, and the potential for plan disqualification provide disincentives for taking out or offering loans. Those who sponsor 401(k) plans for their employees should understand that loan provisions are not benign. Loans can complicate plan administration, increase the probability of errors, and burden plans with additional and unwanted costs. 

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