Prohibited Transaction Question

[Guest annabelle]

In a situation where there are 2 employer plans, does a prohibited transaction result if one plan buys an asset from the other plan? I cannot find anything on point in IRC section 4975 or ERISA 406 or 408.

[KJohnson]

It is hard to speak generally, but in most instances two plans will not be parties in interest with each other. However, where you have to be careful is "who" is deciding to buy and "who" is deciding to sell. If you have the same fiduciary making the call for both plans, I think you have a potential 406(b)(2) issue prohibiting a fiduciary

(2) in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, or

If you have the same fiduciaries but have multiple individualss then you could try the abstain/vote route--one votes for one plan and abstains from the other.

However, you still have an issue that even if the fiduciary is abstaining on one end, he is still a fiduciary to that plan for which he abstains and the interests of the plan for which he is voting stilll could be considered adverse to the plan for which he is abstaining.

Of course if the fiduciaries are completely different, then the transaction, on its face, might not present the 406(b)(2) issue.

[Kirk Maldonado]

There's at least one court case and several DOL letters on this precise issue. You might want to review those documents to see if there are any other issues before you go too far down this path.