Spring 2006-08 DOL modifies two prohibited transaction exemptions
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Spring 2006-08 DOL modifies two prohibited transaction exemptions

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Number 63
Spring 2006

DOL modifies two prohibited transaction exemptions

The Employee Retirement Income Security Act’s (“ERISA”) sec. 406(a) prohibits a fiduciaries from entering into a transaction which he “knows or should know” is a transaction with a party in interest.

It generally prohibits ERISA plans from entering into transactions with plan fiduciaries and other related parties unless an exemption applies. This general rule allows several statutory exemptions (ERISA sec. 408) and grants the Secretary of Labor the authority to establish additional prohibited transactions exemptions (PTE).

Accordingly, the Department of Labor has established various class exemptions which automatically apply if the particular transaction complies exactly with the conditions set forth in the exemption.

On February 2, 2006 , the U.S. Department of Labor’s Employee Benefits Security Administration published amendments to two existing class exemptions that will permit plans to engage in securities and other transactions with a greater number of financial institutions and insurers, if certain conditions are met.


Brokers and banks


Under the amendments to Prohibited Transaction Exemption (PTE) 75-1, a plan may engage in certain transactions with broker-dealers, reporting dealers and banks that are plan fiduciaries, as long as the institutions and their affiliates do not have investment authority over, or provide investment advice with regard to, the plan’s assets involved in the transaction.


Insurance agents and brokers


The department also granted similar relief under PTE 84-24 for insurance agents and brokers, pension consultants and mutual fund principal underwriters, to engage in transactions involving sales of insurance and mutual fund products, and to receive related commissions.

As explained by the DOL news release, the revised exemptions “address consolidation in the financial services industry that has resulted in greater numbers of affiliations between financial institutions. One protection afforded by the exemptions is that the terms of the transactions are required to be as favorable to the plans as an arm’s length transaction with an unrelated party would be.”

The amendments to PTE 75-1 are retroactively effective to January 1, 1975; and those to PTE 84-24 are effective on their date of publication in the Federal Register, i.e., February 3, 2006.

© 2006 Goldman Antonetti & Cordóva, LLC