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 (within the 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, the assets 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]
