DOL Issues Its Final Rule on Prohibited Transaction Exemption Procedures

The Department of Labor’s Employee Benefits Security Administration (EBSA) issued a final rule on October 27, 2011, governing the process for filing requests for administrative exemptions from the prohibited transaction provisions under the Employee Retirement Income Security Act (ERISA). ERISA’s design includes numerous safeguards to prevent employee benefit plan fiduciaries from self-dealing or otherwise threatening the integrity of such plans. Specifically, ERISA Section 406 generally prohibits the fiduciary of an ERISA-covered benefit plan from engaging in any transaction that involves the exchange of property, goods, services, or credit between the plan and a “party in interest.” ERISA Section 408(a), however, authorizes the DOL to grant administrative exemptions for “any fiduciary or transaction, or class of fiduciaries or transactions.” Employers who are interested in applying for such exemptions will welcome new procedures designed to streamline and clarify the process. 

More than a year after submitting its proposed rule updating and consolidating the exemption procedures, EBSA has published the final rule, which consists of discrete sections (codified at 29 CFR part 2570, subpart B), generally reflecting the chronological order of the steps involved in processing an exemption application. As such, the rule “provides the public with a more comprehensive description of the prohibited transaction exemption process.”

Many of the final rule’s changes involve the types of information that must accompany an exemption request. Several changes revise the requirements for notifying interested parties that an exemption request has been filed. The final rule also affords expanded opportunities for applicants to submit information in electronic form for both the exemption request and notification to plan participants and other interested parties. Based on the changes, EBSA notes that it hopes that the updated procedures will “promote more prompt and efficient consideration of exemption applications” by the agency.

The final rule is effective December 27, 2011, and the rule’s new procedures will apply to all exemption applications filed on or after that date.

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