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What is considered a prohibited transaction?

ERISA and the Internal Revenue Code define the following to be Prohibited Transactions:

  • Prohibited Transactions Between the client’s covered account (e.g. plan, IRA) and a Party in Interest:1
    • Sale, exchange, or leasing of any property between the account and a party in interest
    • Lending of money or other extension of credit between the account and a party in interest (prohibits both loans from an account to a party in interest, as well as loans to an account from a party in interest)
    • Furnishing of goods, services, or facilities between the account and a party in interest
    • Transfer to, or use by or for the benefit of, a party in interest of any account assets.
    • Acquisition, on behalf of the account, of any employer security or employer real property in excess of the amounts permitted by ERISA
  • Fiduciary Self-Dealing Prohibited Transactions:
    • Dealing with assets of the account in the fiduciary’s own interest or account (the self-dealing provision)
    • Acting in any transaction involving the plan on behalf of a party whose interests are adverse to those of the plan or the interests of its participants or beneficiaries (the conflict-of-interest provision)
    • Receiving any consideration for the fiduciary’s personal account from any party dealing with such client account in connection with a transaction involving assets of the client account (the anti-kickback provision)

 

1A “party in interest” under the ERISA prohibited transaction rules is known as a “disqualified person” under the parallel Internal Revenue Code prohibited transaction rules. The ERISA and Internal Revenue Code provisions are otherwise nearly identical.

 

G46288-37