Unlocking the process - Guide to ERISA individual prohibited transaction exemptions

Eversheds Sutherland (US) LLP

From 1996-2020, the US Department of Labor granted more than 1,200 individual exemptons from the ERISA prohibited transaction rules.

One of the distinctive features of ERISA is its prohibition, in ERISA section 406 as a matter of positive law and Internal Revenue Code section 4975 through an excise tax regime, of (i) a wide range of specified transactions between a covered ERISA plan or IRA and a far-reaching group of ostensible “insiders” to those arrangements (“parties in interest” or “disqualified persons” in the language of ERISA and the Code, respectively), and on (ii) “fiduciaries” for those arrangements acting with a self-interest, conflicted interest or in receipt of third-party compensation.

Even as it enacted these purposefully overbroad prohibited transaction rules, however, Congress recognized that “some transactions between a plan and a party-in-interest may provide substantial independent safeguards of the plan participants and beneficiaries” and “some transactions which are prohibited...nevertheless should be allowed in order not to disrupt the established business practices of financial institutions...consistent with adequate safeguards to protect employee benefit plans.”

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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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