2013 in Review: ERISA Individual Prohibited Transaction Exemptions and Advisory Opinions

by Eversheds Sutherland (US) LLP

In 2013, the Department of Labor (DOL) maintained a modest program of advance guidance under the Employment Retirement Income Security Act of 1974, as amended (ERISA), in response to requests from the regulated community. 

  • DOL issued five ERISA advisory opinions – just under the average of six that DOL has published annually since 2006.  (In contrast, during the 10 years preceding 2006, DOL issued on average 17 advisory opinions annually.) 
  • DOL issued substantially fewer individual exemptions from the ERISA prohibited transaction rules – only nine individual exemptions and seven EXPRO exemptions – as compared to averages of 28 and 12, respectively, during prior years of this Administration.  

It is clear that DOL’s regulatory priorities, notably guidance under the Affordable Care Act and the ERISA §3(21)(A)(ii) “investment advice” fiduciary re-proposal, taxed its resources in 2013, including those of both the Office of Regulations and Interpretations and the Office of Exemption Determinations.  It is less clear whether other factors also are at work, e.g., whether timing anomalies affected 2013 guidance; whether the scope of needed guidance is narrowing over time; or whether the regulated community is more frequently choosing not to bring issues or transactions to DOL where advance guidance could be constructive or is less frequently able to get to conclusion with DOL on such requests.

Advisory Opinions

DOL may respond to inquiries on the application of ERISA to a particular set of facts by issuing an advisory opinion.  The five Advisory Opinions in 2013 were particularly instructive to financial institutions and other plan service providers:

  • AO 2013-01A addressed the question of the extent to which the fiduciary and prohibited transaction provisions of ERISA apply to certain “cleared swap” transactions conducted pursuant to the provisions of the Dodd-Frank Act.  (Click here for our Legal Alert.)
  • DOL issued AO 2013-02A regarding the status of certain plan participation agreements as indicative that a plan had been maintained pursuant to a collective bargaining agreement for purposes of electing to be treated as a multiemployer plan. DOL expressed its view that a document must show evidence of actual collective bargaining to be considered a bona fide collective bargaining agreement.
  • In AO 2013-03A, DOL opined on the application of ERISA plan asset and fiduciary obligations to a plan’s contractual rights to share in revenue sharing payments the service provider receives as a result of plan investments. (Click here for our Legal Alert.)
  • DOL approved the use of a summary prospectus to satisfy prospectus delivery requirements of prohibited transaction class exemption 77-4.  AO 2013-04A. (Click here for our Legal Alert.)
  • AO 2013-05A confirmed that certain “deferred prosecution agreements” are not criminal convictions, which would otherwise disqualify an investment manager from serving as a Qualified Professional Asset Manager (QPAM).

Individual Prohibited Transaction Exemptions

ERISA’s prohibited transaction rules generally prohibit, among other things:

  • Sale and lending transactions between (i) certain retirement and other plans specified in ERISA and/or the Internal Revenue Code, and (ii) a “party in interest” or “disqualified person” to that plan; and
  • Self-dealing or conflicted interests on the part of a plan “fiduciary.” 

DOL is, however, authorized to grant a conditional or unconditional exemption for an otherwise prohibited transaction if DOL determines that the exemption is (i) administratively feasible, (ii) in the interests of the plan and of its participants and beneficiaries, and (iii) protective of the rights of plan participants and beneficiaries.

DOL published only nine individual prohibited transaction exemptions (PTE) in 2013, compared with 24 in 2011 and 20 in 2012. Under DOL’s “EXPRO” procedure, which permits expedited consideration of transactions substantially similar to other transactions for which individual exemptions have been recently provided, DOL has reported seven, which is less than the 10 exemptions granted in 2011 and the 15 exemptions granted in 2012. 

The exemptions that were issued covered a variety of interesting topics, including:

  • Amendments to the “underwriter exemptions” to change the definition of credit rating agency. The underwriter exemptions are individual exemptions that provide relief for the origination and operation of certain pooled investment trusts and the acquisition, holding and disposition by employee benefit plans of certain asset-backed, pass-through certificates representing undivided interests in those investment trusts. (PTE 2013-08);
  • A retroactive exemption covering transactions and compensation paid to a financial institution in connection with prohibited transactions engaged in by financial advisers, against the financial institution’s policies, conditioned among other things on the transactions being corrected under the DOL Voluntary Fiduciary Correction program (PTE 2013-01);
  • Exemptions for transactions that do not meet conditions of class or statutory exemptions covering such types of transactions, including QPAM (criminal conviction of an affiliate of the manager, PTE 2013-09) and cross-trading (inability of some investors in a group trust to meet the minimum plan asset threshold for the exemption, PTE 2013-4);
  • The acquisition of employer securities (PTE 2013-02, PTE 2013-03);
  • Captive reinsurance for a benefit funding arrangement (PTE 2013-06), which became the first individual exemption issued after DOL in 2012 informally and temporarily suspended EXPRO exemptions for such arrangements, in order to review and potentially modify the protections required for affected ERISA plans and participants.
    • This individual exemption expressly required that augmented plan benefits be provided to participants every year, not just the initial year, and that an independent fiduciary monitor compliance on an ongoing basis. 
    • DOL did exercise its discretion to allow four EXPRO exemptions involving captives in 2013, including an arrangement involving a captive with more than 50% unrelated business where benefit augmentation was not required (the ADM exemption authorized on August 5, 2013, in which Sutherland represented the applicant).
  • Sale or licensing of data and analytical tools by a party in interest to a plan and the participation of a plan in the party in interest’s security lending platform (PTE 2013-05); and
  • Sale of real property between a plan and party in interest (PTE 2013-07).

The chart below is an index with brief descriptions of the 2013 individual exemptions and links to the publication of the granted exemptions.

2013 Individual PTEs


Requesting Party


Asset-Backed Securities/Underwriter Exemptions: change in definition of rating agency

Amends the Underwriter Exemptions and revises the definition of “rating agency” by eliminating any specific reference to a particular credit rating agency, and substituting instead a requirement that a credit rating agency: (i) is currently recognized by the U.S. Securities and Exchange Commission (SEC) as a nationally recognized statistical ratings organization (NRSRO); (ii) has indicated on its most recently filed SEC Form NRSRO that it rates “issuers of asset-backed securities”; and (iii) has had, within a period not exceeding 12 months prior to the initial issuance of the securities, at least three “qualified ratings engagements.”  A “qualified ratings engagement” is one (i) requested by an issuer or underwriter of securities in connection with the initial offering of the securities; (ii) for which the credit rating is compensated for providing ratings; (iii) which is made public to investors generally; and (iv) which involves the offering of securities of the type that would be granted relief by the Underwriter Exemptions.

Prudential Securities Inc., et. al.

PTE 2013-08

78 FR 41091 (07/09/2013)

Captive Reinsurance

(a) The reinsurance of risks and the receipt of premiums therefrom by Red Re, an affiliate of The Coca-Cola Company, in connection with group term life insurance under The Coca-Cola Company Health and Welfare Benefits Plan to pay for group term life insurance benefits under such plan; and (b) the reinsurance of risks and the receipt of premiums therefrom by Red Re in connection with accidental death and dismemberment (AD&D) insurance sold by a Fronting Insurer to The Coca-Cola Company Retiree Benefits Plan to pay for AD&D benefits under that plan.

The Coca-Cola Company and Red Re, Inc.


PTE 2013-06  

78 FR 19323 (03/29/2013)


The cross-trading of securities between various accounts managed by Silchester, where at least one of the accounts involved in the cross-trade is an ERISA Account.

Silchester International Investors LLP

PTE 2013-04  

78 FR 19318 (03/29/2013)

Acquisition and Holding by Plans of Employer Securities

The past acquisition and holding of certain units of Atlas Pipeline Holdings, L.P. by the plan in connection with a merger of Arkham Corporation with and into Atlas Energy Inc., a party in interest with respect to the Plan.

Atlas Energy, Inc. Employee Stock Ownership Plan

PTE 2013-02  

78 FR 19317 (03/29/2013)

The acquisition and holding of certain rights to purchase the ordinary shares of stock of Central Pacific Financial Corporation by a participant directed, defined contribution plan sponsored by CPFC, a party in interest with respect to the Plan, in connection with an offering of the stock by CPFC to all shareholders, including the Plan.

Central Pacific Bank 401(k) Retirement and Savings Plan

PTE 2013-03  

78 FR 19317 (03/29/2013)

Purchase by Plan of Real Property

Permits the purchase by the fund of certain real property from a party in interest with respect to the Fund.

The Mo-Kan Teamsters Apprenticeship and Training Fund

PTE 2013-07  

78 FR 30936 (05/23/2013)


Entities within UBS’s Global Asset Management and Wealth Management Americas divisions that function as QPAMs may continue to rely on the relief provided by PTE 84–14, notwithstanding the failure to satisfy the condition in section I(g) of PTE 84–14 as a result of their affiliation with UBS Securities Japan Co. Ltd., against whom a judgment of conviction for wire fraud has been entered.


PTE 2013- 09 

78 FR 56740 (09/13/13)

Sale and Licensing by a Party in Interest and Securities Lending

The sale or licensing of certain data and/or analytical tools to a plan by EquiLend, a party in interest with respect to such plan and, in addition, (1) the participation in EquiLend’s electronic securities lending platform (the Platform) by an equity owner of EquiLend (an Equity Owner), in its capacity as a securities lending agent for a plan (an Owner Lending Agent); (2) the sale or licensing of certain data and/or analytical tools by EquiLend to a plan for which an Equity Owner acts as a securities lending agent; and (3) the provision by an Owner Lending Agent to EquiLend of securities lending data based on off-Platform securities lending transactions conducted by an Owner Lending Agent on behalf of a plan.

EquiLend Holdings, LLC

PTE 2013-05  

78 FR 19321 (03/29/2013)

Trade Executions and Compensation

Permits, effective January 4, 2002, until December 9, 2005, (1) principal trades by UBS Financial Services Inc. (UBS) with certain IRAs, which resulted in the IRAs purchasing or selling securities from UBS; and (2) compensation paid by the IRAs to UBS in connection with such transactions.

UBS Financial Services Inc.

PTE 2013-01 

78 FR 19316 (03/29/2013)


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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