2014 in Review: ERISA Individual Prohibited Transaction Exemptions and Advisory Opinions

In 2014, the Department of Labor (DOL) maintained a diminished program of advance guidance under the Employment Retirement Income Security Act of 1974, as amended (ERISA), in response to requests from the regulated community.

  • For the first time since the enactment of ERISA in 1974, DOL issued no ERISA advisory opinions in 2014. It made use of other forms of advance guidance – information letters, technical releases and field assistance bulletins – at about the same rate as recent years.
  • Continuing a pattern, DOL issued eleven individual exemptions from the ERISA prohibited transaction rules and six EXPRO exemptions. The number of individual and EXPRO exemptions issued in recent years continues to trend downward, from a combined peak of 51 in 2009 to only 17 in 2014.

As has been the case for several years, the regulatory priorities of DOL’s Employee Benefits Security Administration (EBSA) – notably, guidance under the Affordable Care Act and the ERISA § 3(21)(A)(ii) “investment advice” fiduciary reproposal – constrained the resources of its Office of Regulations and Interpretations and Office of Exemption Determinations available for other matters. It also seems possible that the transition of EBSA senior leadership positions in recent years may have affected output. It is less clear whether other factors also are at work, e.g., whether the scope of needed guidance is narrowing over time, or whether the regulated community is more frequently choosing not to bring issues or transactions to DOL or is less frequently able to get to conclusion with DOL on such requests. Finally, it remains to be seen whether DOL’s strategic prioritization of enforcement, announced in 2013, is resulting in a diminished advance guidance program.

Advance Guidance

While it issued no advisory opinions, DOL did publish advance guidance five times, in the following forms:

  • Two information letters, in conjunction with Treasury guidance, on lifetime income provided through target funds and the Administration’s myRA initiative;
  • Two field assistance bulletins on locating missing participants in terminating defined contribution plans and the permissible use of plan assets by apprenticeship and training plans to pay expenses related to skills contests and competitions; and
  • A technical release on state regulation of stop-loss insurance.

Individual Prohibited Transaction Exemptions

ERISA’s prohibited transaction rules generally prohibit, among other things:

  • Sale and lending transactions between (i) certain retirement and other plans specified in ERISA and/or the Internal Revenue Code, and (ii) a “party in interest” or “disqualified person” to that plan; and
  • Self-dealing or conflicted interests on the part of a plan “fiduciary.”

DOL is, however, authorized to grant a conditional or unconditional exemption for an otherwise prohibited transaction if DOL determines that the exemption is (i) administratively feasible, (ii) in the interests of the plan and of its participants and beneficiaries, and (iii) protective of the rights of plan participants and beneficiaries.

DOL published eleven individual prohibited transaction exemptions (PTEs) in 2014, as compared to nine in 2013, twenty in 2012 and twenty-four in 2011. Under DOL’s “EXPRO” procedure, which permits expedited consideration of transactions substantially similar to other transactions for which individual exemptions have been recently provided, DOL has reported six granted exemptions in 2014. The number of EXPRO exemptions granted annually has varied considerably during this Administration, from highs of seventeen in 2009 and fifteen in 2012 to a low of four in 2010.

The exemptions that were issued covered a variety of interesting topics, including the following:

  • Although there are at least five PTEs to like effect granted since 2002 and as recently as 2013, a proposed exemption to allow Credit Suisse to continue to act as a qualified professional asset manager (QPAM) notwithstanding an unrelated criminal conviction (related to offshore accounts for U.S. taxpayers) became politically controversial. A temporary PTE was issued, and a highly unusual hearing on longer term relief is scheduled for January 15, 2015. (PTE 2014-11)
  • An exemption for the reinsurance of certain welfare benefits to a captive insurer continues a series of such PTEs, but was only the second such exemption issued after a brief hiatus in 2012 and the modification of several conditions or requirements for these exemptions. (PTE 2014-03)
  • Three retroactive exemptions were granted permitting plans to acquire subscription rights in connection with stock rights offerings from a plan sponsor or an affiliated corporation. (PTEs 2014-05, -07 and -08)
  • Another exemption allowed relationship banking beyond that permitted by class PTEs 93-33 and 97-11. (PTE 2014-01)
  • Three exemptions permitted the extension of credit in connection with various plan transactions including the sale or exchange of plan assets, and the holding of securities and/or in-kind contributions to a plan. (PTEs 2014-04, -06, -10)
  • In-kind contributions to a plan by the plan sponsor were allowed. (PTE 2014-02).
  • Relief granted under a previously issued exemption covering individual retirement account (IRA) investments in a hedge fund was expanded to include 401(k) account investments. (PTE 2014-09)

The attached chart is an index with brief descriptions of the 2014 individual exemptions and links to the publication of the granted exemptions.