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Trust Examination Manual
29
CFR 2509.75-2 - Interpretive bulletin relating to prohibited transactions.
Section Number: 2509.75-2
Section Name: Interpretive bulletin relating to prohibited
transactions.
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On February 6, 1975, the Department of Labor issued an
interpretive bulletin, ERISA IB 75-2, with respect to
whether a party in interest has engaged in a prohibited
transaction with an employee benefit plan where the party
in interest has engaged in a transaction with a corporation
or partnership (withinthe meaning of section 7701 of
the Internal Revenue Code of 1954) in which the plan
has invested.On November 13, 1986 the Department published
a final regulation
dealing with the definition of ``plan assets''. See Sec. 2510.3-101 of this
title. Under that regulation,theassets of certain entities in which plans invest
would include ``plan assets'' for purposes of the fiduciary responsibility
provisions of the Act. Section 2510.3-101 applies only for purposes of identifying
plan assets on or after the effective date of that section, however, and Sec.
2510.3-101 does not apply to plan investments in certain entities that qualify
for the transitional relief provided for in paragraph (k) of that section.
The principles discussed in paragraph (a) of this Interpretive Bulletin continue
to be applicable for purposes of identifying assets of a plan for periods prior
to the effective date of Sec. 2510.3-101 and for investments that are subject
to the transitional rule in Sec. 2510.3-
101(k). Paragraphs (b) and (c) of this Interpretive Bulletin, however, relate
to matters outside the scope of Sec. 2510.3-101, and nothing in that section
affects the continuing application of the principles discussed in those parts.
(a) Principles applicable to plan investments to which
Sec. 2510.3-101 does not apply. Generally, investment
by a plan in securities (within the meaning of section
3(20) of the Employee Retirement Income Security Act
of 1974) of a corporation or partnership will not,
solely by reason of such investment, be considered
to be an investment in the underlying assets of such
corporation or partnership
so as to make such assets of the entity ``plan assets''
and thereby make a subsequent
transaction between the party in interest and the corporation
or partnership a prohibited transaction under section
406 of the Act. For example, where a plan acquires
a security of a corporation or a
limited partnership interest in a partnership, a subsequent
lease or sale of property between such corporation
or partnership and a party in interest will not be a
prohibited transaction solely by reason of the plan's
investment in the corporation or partnership. This general
proposition, as applied to corporations and partnerships,
is consistent with section 401(b)(1) of the Act, relating
to plan investments in investment companies registered
under the Investment Company Act of 1940. Under section
401(b)(1), an investment by a plan in securities of such an investment
company
may be made
without causing, solely by reason of such investment,
any of the assets of the investment company to be considered
to be assets of the plan.
(b) [Reserved]
(c) Applications of the fiduciary responsibility rules.
The preceding paragraphs do not mean that an investment
of plan assets in a security of a corporation or
partnership may not be a prohibited
transaction. For example, section 406(a)(1)(D)
prohibits the direct or indirect transfer to, or
use by or for the benefit of, a party in interest of
any assets of the plan and section 406(b)(1) prohibits a
fiduciary from dealing with the assets of the plan
in his own interest or for his own account.
Thus, for example, if there is an arrangement under
which a plan invests in, or retains its investment
in, an investment company and as part of the arrangement
it is expected that the investment company will
purchase securities from a party in interest, such
arrangement is a prohibited transaction. Similarly,
the purchase by a plan of an insurance policy pursuant
to an arrangement under which it is expected that
the insurance company will make a loan to a party
in interest is a prohibited transaction. Moreover, notwithstanding
the foregoing, if a transaction between a party in interest
and a plan would be a prohibited transaction, then such
a transaction between a party in interest and such corporation
or
partnership will ordinarily be a prohibited transaction
if the plan may, by itself, require the corporation
or partnership to engage in such transaction. Similarly,
if a transaction between a party in interest and a plan
would be a prohibited transaction, then such a transaction between
a
party in interest and such corporation or partnership
will ordinarily be a prohibited transaction if
such party in interest, together with one or more persons
who are parties in interest by reason of such persons'
relationship (within the meaning of section 3(14)(E)
through (I)) to such party in interest may, with the
aid of the plan but without the aid of any other persons,
require the corporation or
partnership to engage in such a transaction. However,
the preceding sentence does not apply if the parties
in interest engaging in the transaction, together with
one or more persons who are parties in interest by reason
of such persons' relationship (within the meaning of section 3(14)(E)
through (I)) to
such party in interest, may, by themselves, require
the corporation or partnership to engage in the
transaction. Further, the Department of Labor emphasizes
that it would consider a fiduciary who makes or retains
an investment in a corporation or partnership for the
purpose of avoiding the application of the fiduciary
responsibility provisions of the Act to be in contravention of
the
provisions of section 404(a) of the Act.
[51 FR 41280, Nov. 13, 1986, as amended at 61 FR
33849, July 1, 1996]
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