DOL Issues Final Rule Amending Procedures for Prohibited Transaction Exemptions

By SHRM Online staff Nov 1, 2011
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The U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) issued a final rule updating the procedures for filing and processing applications for administrative exemptions from the prohibited transaction provisions of the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code and the Federal Employees’ Retirement System Act (FERSA).

The final rule, which revises decades-old procedures, was published in the Oct. 27, 2011, edition of the Federal Register. “This rule is designed to simplify and bring transparency to the exemption application process,” said Phyllis C. Borzi, assistant secretary of labor for EBSA.

"Prohibited transactions" are transactions between plans and "parties in interest" (also referred to as "disqualified persons") who have a close and statutorily defined relationship with the plan. Among others, parties in interest include employers that sponsor plans, their corporate parents and subsidiaries, plan fiduciaries and certain service providers.

ERISA prohibits various types of transactions between a plan and persons who are parties in interest with respect to the plan. For instance, ERISA section 406(a) prohibits a fiduciary from engaging in a transaction if the fiduciary knows or should know that the transaction is a direct or indirect transfer to, or use by or for the benefit of any party in interest, of the assets of the plan.

A plan sponsor may apply to the DOL to obtain an administrative exemption for a particular proposed transaction that would otherwise be prohibited after proving that the transaction is in the best interest of the plan. The DOL must find that the exemption is feasible administratively, in the interest of the plan and of its participants and beneficiaries, and protective of the rights of participants and beneficiaries of the plan.

Easier Filing

The final rule consolidates the existing policies and guidance on the exemption process into a single source, and clarifies the types of information and documentation required to submit a complete filing. In addition, it expands the method for transmitting filings to include electronic submissions, and makes exemptions more understandable for participants and other interested parties.

The updates include:

A requirement that applicants provide interested persons with a brief objective summary of complex transactions.

Guidance on the amount of compensation that may be received by a fiduciary or an appraiser when they are paid by a related party (or its affiliate) to the exemption transaction.

Clarification of the content of specialized statements, as needed, from “qualified independent fiduciaries,” “qualified independent appraisers” and other relevant experts.

A description of the current standards for obtaining retroactive exemptive relief.

The final rule takes effect on Dec. 27, 2011, and applies to all exemptions filed on or after that date.

Related Article:

Prohibited Benefit Plan Transactions Really Are Taboo, SHRM Online Benefits Discipline, April 2011

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Retirement Plans Resource Page

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