EBSA to Issue Proposed Rule on ERISA Prohibited Transaction Exemption Procedures

The proposed rule, if adopted, would clarify and consolidate the Department of Labor’s exemption procedures and provide the public with a more comprehensive description of the prohibited transaction exemption process, the document says. In addition to the information already required to be included in the exemption application, the expanded rule would require the inclusion of a chronology of the events leading to the exemption transaction.  

The rule would require that the already required specialized statements from qualified, independent appraisers be current and not more than one year old on the date of the transaction, and there must be a written update by the qualified independent appraiser reaffirming the accuracy of the prior appraisal as of the date of the transaction. The proposal also includes changes to rules regarding the designation of an independent fiduciary who is qualified to represent the interests of the plan.  

The proposed rule will be published on August 30, and the EBSA is requesting comments be received within 45 days after publication.  

The EBSA explains in the document that ERISA generally prohibits a plan fiduciary from (i) dealing with the assets of a plan in his or her own interest or for his or her account, (ii) acting in any transaction involving the plan on behalf of a party whose interests are adverse to those of the plan or its participants and beneficiaries, or (iii) receiving any consideration for his or her own personal account from a party dealing with the plan in connection with a transaction involving plan assets, unless an exemption specifically applies to such conduct.  

To supplement these provisions, sections 406 and 407(a) of ERISA impose restrictions on the nature and extent of plan investments in assets such as “employer securities” and “employer real property.” Most of the transactions prohibited by section 406 of ERISA are likewise prohibited by section 4975 of the Code, but both ERISA and the Code contain various statutory exemptions from the prohibited transaction rules, such as loans to participants, the provision of services necessary for the operation of a plan for no more than reasonable compensation, loans to employee stock ownership plans, and deposits in certain financial institutions regulated by state or federal agencies.  

In addition, section 408(a) of ERISA authorizes the Secretary of Labor to grant administrative exemptions (on either an individual or a class basis) from the restrictions of ERISA sections 406 and 407(a) in instances where the Secretary makes findings on the record that such relief is (i) administratively feasible, (ii) in the interests of the plan and its participants and beneficiaries, and (iii) protective of the rights of participants and beneficiaries of such plan.