Section 406 (a) of the Employee Retirement Income Security Act of 1974 (“ERISA”) broadly prohibits plan fiduciaries from causing a plan to enter into either a direct or an indirect transaction involving the plan or its assets that have the potential for conflicts of interest. 1 Two general types  of transactions are prohibited: transactions with “parties in interest” and “fiduciary self-dealing transactions.” Certain exemptions apply: exemptions can be statutory or granted by the United States Department of Labor either on a class or individual basis.

 

Absent a specific exemption, the “party in interest” prohibited transactions include the following:

 

1. any sale, exchange, or leasing of any property between a plan and a party in interest;

 

1. lending money or extending credit by a plan to a party in interest;

 

1. furnishing goods, services, or facilities by a plan to a party in interest or by a party in interest to a plan;

 

1. any transfer to, or use by or for the benefit of, a party in interest, of any assets of a plan; or

 

1. causing a plan to acquire and to retain employer securities or employer real property in violation of ERISA § 407(a).

 

“Party in interest” is a defined term under ERISA. See Section 406(a)(1) of ERISA.

 

In addition, plan fiduciaries are prohibited from engaging in the following types of self-dealing transactions:

 

1. dealing with plan assets in his own interest;

 

1. acting in a transaction involving a plan on behalf of a person whose interests are adverse to the interests of the plan, its participants or beneficiaries; or

 

1. receiving any consideration for his own personal account from any party dealing with the plan in connection with a transaction involving the plan's assets.

 

Fiduciaries who cause a plan to violate ERISA’s prohibited transaction rules have also breached their fiduciary duties to the plan and may be held personally liable for any losses caused to the plan as a result of their breach. In addition, ERISA’s other enforcement provisions may apply (e.g., the fiduciary may be barred from acting as an ERISA fiduciary in the future).