The Department of Labor today announced guidelines for determining
when a party in
interest with respect to an employee benefit plan may receive an advance
for expenses to be incurred on behalf of the plan without engaging in a
transaction prohibited by section 406 of the Employee Retirement Income
Security Act of 1974. That section prohibits, among other things, any
lending of money from a plan to a party in interest, or transfer to, or
use by or for the benefit of, a party in interest of any assets of the
plan, as well as any act whereby a fiduciary deals with the assets of a
plan in his own interest or for his own account.
However, section 408(c)(2) of the Act provides that nothing in
section 406 of the Act shall be construed to prohibit the reimbursement
by a plan of expenses properly and actually incurred by a fiduciary in
the performance of his duties with the plan. Questions have arisen under
section 408(c)(2) of the Act as to whether a plan may reimburse a party
in interest in the performance of his duties with the plan and as to
whether a plan might make an advance to a fiduciary or other party in
interest for expenses to be incurred in the future.
The Department of Labor views the relevant provisions of section
408(c)(2) as clarifying the scope of section 406 so as to permit
reimbursement of fiduciaries for expenses incurred in the performance of
their duties with a plan. Similarly, consistent with section 408(c)(2),
section 406 is construed to permit the reimbursement by the plan of
expenses properly and actually incurred by a party in interest in the
performance of his duties with the plan.
If a plan makes an advance to a fiduciary or other party in interest
to cover expenses to be properly and actually incurred by such person in
the performance of his duties with the plan, a prohibited transaction
within the meaning of section 406 shall not occur when the plan makes
the advance if--
(a) The amount of such advance is reasonable with respect to the
amount of the expense which is likely to be properly and actually
incurred in the immediate future (such as during the next month), and
(b) The party in interest accounts to the plan at the end of the
period covered by the advance for the expenses actually incurred
(whether computed on the basis of actual expenses incurred or on the
basis of actual transportation costs plus a reasonable per diem
allowance, where appropriate).
It should be noted, however, that despite the reasonableness of the
amount of the advance and of the expenses underlying it, the question of
whether incurring such expenses was prudent, and thus whether the
advance was for reasonable expenses, is to be judged pursuant to section
404 of the Act (relating to fiduciary responsibilities).
[40 FR 31755, July 29, 1975. Redesignated at 41 FR 1906, Jan. 13, 1976]
