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;
(2) lending money or extending credit by a plan to a party in interest;
(3) furnishing goods, services, or facilities by a plan to a party in interest or by a party in interest to a plan;
(4) any transfer to, or use by or for the benefit of, a party in interest, of any assets of a plan; or
(5) 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;
(2) 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
(3) 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).
© Boutwell Fay LLP 2018, All Rights Reserved. This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us. The information contained in this article is effective as of March 30, 2018.
¹ Persons who engage in Prohibited Transactions may also be subject to certain excise taxes under Section 4975 of the Internal Revenue Code