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“Prohibited Transactions” Under ERISA

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The Employee Retirement Income Security Act (“ERISA”) contains a “prohibited transactions” rule. This rule was created to prohibit transactions which provide an opportunity for abuse.

ERISA contains a “prohibited transactions” rule. This rule was created to prohibit transactions which provide an opportunity for abuse. The prohibited transactions, outlined in 29 U.S.C. § 1106 fall into the following three categories:

  • Transactions between Plan and party in interest;
  • Transactions between Plan and fiduciary; and,
  • Transfer of real or personal property to plan by party in interest.

A claim for a breach of fiduciary duty may be brought by either the Plan participant, his or her beneficiary, a fiduciary, or the Secretary of Labor.  Civil actions may be brought to (1) recover benefits due under the Plan, (2) to enforce rights under the Plan’s terms, (3) to clarify rights to future benefits under the Plan’s terms, and/or (4) to enjoin any practice which violates any provision of ERISA or the terms of the Plan.  Attorney fees and costs may be awarded to the prevailing party in an ERISA civil enforcement action. 29 U.S.C. § 1132(g)(1).

Employee Retirement Income Security Act (“ERISA”) requires that the Plan identify a fiduciary or fiduciaries in the Plan Documents. The identified fiduciaries are traditionally plan administrators and plan trustees who have the authority to control, manage, operate, and administer the Plan.

A fiduciary owes a duty of care and trust to another and must primarily act for the benefit of another. ERISA outlines the duties that a fiduciary is required to follow when serving in this capacity. 29 U.S.C. § 1104.  These include:

  • acting solely in the interest of the Plan’s participants and their beneficiaries;
  • acting for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan;
  • carrying out duties with the care, skill, prudence and diligence of a prudent person familiar with the matters;
  • following the plan documents; and,
  • diversifying plan investments.
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