DOL proposes class exemption to streamline prohibited transaction exemption process

Article Abstract:

The US Dept of Labor has proposed an accelerated process for receiving administrative exemptions for transactions by qualified plans that would otherwise be considered prohibited. Plan administrators would submit a description of the proposed transaction along with identification of two substantially similar transactions that have been approved in the last five years. If the Dept of Labor does not object within 45 days, the plan would give notice to interested parties and a 25 day comment period would begin. If no major objections are made, the transaction would be approved.

Administrative procedure

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Proposed PTE would permit sale to party-in-interest to reverse prior prohibited transaction

Article Abstract:

The US Dept of Labor offered a prohibited transaction exemption to a retirement plan for the two shareholders of a small corporation for the sale of a lathe from the plan to the corporation. The lathe had been bought by the plan at a bargain price and had been leased to the employer at an appropriate rent. The sale to the employer was allowed as a means of curing the prohibited transaction of buying the lathe in the first place, but the Dept of Labor was not willing to find the original transaction exempt from prohibited transaction excise taxes.

Related party transactions

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IRS focuses on plan loans to owner-employees in small plans; audits result in disqualification, prohibited transactions

Article Abstract:

The IRS has ruled in two technical advice memoranda, TAM 9701001 and TAM 9713002, that 100% owner-employees violated the exclusive benefit rule in making frequent loans from the plans they had established for their small businesses. Specifically, in TAM 9713002, the IRS found that the plan was disqualified by violations of the exclusive benefit rule and by prohibited transactions. The prohibited transactions were transfers of real estate to the plan in an attempt to replace the 95% of plan assets that had been depleted by the loans.

Pension Fund Qualification (Tax), Compensation and benefits, Small business, Pension funds, Fiduciary duties

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