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Last Update:
27-May-2013


 

ERISA Section 406, 407 & 408

Prohibited Transactions

ERISA § 406
(a) Transactions Between Plan and Party in Interest
Except as provided in section 408 of this title:
  (1) A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect -
      (A) sale or exchange, or leasing, of any property between the plan and a party in interest; . . .

Limitation with Respect to Acquisition and Holding of
Employer Securities and Employer Real Property by Certain Plans

ERISA Section 407
(a) Percentage Limitation
Except as otherwise provided in this section and section 414 of this title:
  (1) A plan may not acquire or hold -
      (A) any employer security which is not a qualifying employer security, or
      (B) any employer real property which is not qualifying employer real property.
  (2) A plan may not acquire any qualifying employer security or qualifying employer real property, if immediately after such acquisition the aggregate fair market value of employer securities and employer real property held by the plan exceeds 10 percent of the fair market value of the assets of the plan.

(b) Exception
  (1) Subsection (a) of this section shall not apply to any acquisition or holding of qualifying employer securities   or qualifying employer real property by an eligible individual account plan.
  (2)
      (A) If this paragraph applies to an eligible individual account plan, the portion of such plan which consists of applicable elective deferrals (and earnings allocable thereto) shall be treated as a separate plan -
        (i) which is not an eligible individual account plan, and
        (ii) to which the requirements of this section apply.
. . .
      (C) For purposes of this paragraph, the term “applicable elective deferral” means any elective deferral (as defined in section 402(g)(3)(A) of the Internal Revenue Code of 1986) which is made pursuant to a qualified cash or deferred arrangement as defined in section 401(k) of the Internal Revenue Code of 1986.
  (3) Cross References. -
      (A) For exemption from diversification requirements for holding of qualifying employer securities and qualifying employer real property by eligible individual account plans, see section 404(a)(2) of this title.
      (B) For exemption from prohibited transactions for certain acquisitions of qualifying employer securities and qualifying employer real property which are not in violation of 10 percent limitation, see section 408(e) of this title.

(d) Definitions – For purposes of this section -
  (1) The term ''employer security'' means a security issued by an employer of employees covered by the plan, or by an affiliate of such employer. . .
  (3)
      (A) The term ''eligible individual account plan'' means an individual account plan which is (i) a profit-sharing, stock bonus, thrift, or savings plan; (ii) an employee stock ownership plan; or (iii) a money purchase plan which was in existence on September 2, 1974, and which on such date invested primarily in qualifying employer securities. Such term excludes an individual retirement account or annuity described in section 408 of title 26.
      (B) Notwithstanding subparagraph (A), a plan shall be treated as an eligible individual account plan with respect to the acquisition or holding of qualifying employer real property or qualifying employer securities only if such plan explicitly provides for acquisition and holding of qualifying employer securities or qualifying employer real property (as the case may be). In the case of a plan in existence on September 2, 1974, this subparagraph shall not take effect until January 1, 1976.
      (C) The term ''eligible individual account plan'' does not include any individual account plan the benefits of which are taken into account in determining the benefits payable to a participant under any defined benefit plan.
  (4) The term ''qualifying employer real property'' means parcels of employer real property -
      (A) if a substantial number of the parcels are dispersed geographically;
      (B) if each parcel of real property and the improvements thereon are suitable (or adaptable without excessive cost) for more than one use;
      (C) even if all of such real property is leased to one lessee (which may be an employer, or an affiliate of an employer); and
      (D) if the acquisition and retention of such property comply with the provisions of this part (other than section 404(a)(1)(B) of this title to the extent it requires diversification, and sections 404(a)(1)(C), 406 of this title, and subsection (a) of this section).
  (5) The term ''qualifying employer security'' means an employer security which is -
      (A) stock,
      (B) a marketable obligation (as defined in subsection (e) of this section), or
      (C) an interest in a publicly traded partnership (as defined in section 7704(b) of title 26), but only if such partnership is an existing partnership as defined in section 10211(c)(2)(A) of the Revenue Act of 1987 (Public Law 100-203).

Exemptions from Prohibited Transactions

ERISA Section 408
Exemptions from Prohibited Transactions
(e) Acquisition or Sale by Plan of Qualifying Employer Securities; Acquisition, Sale, or Lease by Plan of Qualifying Employer Real Property
Sections 406 and 407 of this title shall not apply to the acquisition or sale by a plan of qualifying employer securities (as defined in section 407(d)(5) of this title) or acquisition, sale or lease by a plan of qualifying employer real property (as defined in section 407(d)(4) of this title)
  (1) if such acquisition, sale, or lease is for adequate consideration (or in the case of a marketable obligation, at a price not less favorable to the plan than the price determined under section 407(e)(1) of this title),
  (2) if no commission is charged with respect thereto, and
  (3) if –
      (A) the plan is an eligible individual account plan (as defined in section 407(d)(3) of this title), or . . .