D. Prohibited transactions
Certain transactions are prohibited under the law to prevent dealings with parties who may be in a position to exercise improper influence over a retirement plan. Fiduciaries are prohibited from engaging in self-dealing and must avoid conflicts of interest that could harm the plan.


The following are prohibited transactions:

  • A sale, exchange, or lease between the plan and party-in-interest;
  • Lending money or other extension of credit between the plan and party- in-interest; and
  • Furnishing goods, services, or facilities between the plan and party-in-interest.

Other prohibitions relate solely to fiduciaries who use the plan's assets in their own interest or who act on both sides of a transaction involving a plan. Fiduciaries cannot receive money or any other consideration for their personal account from any party doing business with the plan related to that business.

Prohibited parties (known as parties in interests) include:
  • The employer,
  • The union,
  • Service providers,
  • Statutorily defined owners, officers and relatives of parties in interest.

E. Reporting requirements

Disclosure and reporting
ERISA requires extensive reporting and disclosure requirements on employee benefit plans. They require various forms and information to be disclosed to participants and filed with either the Department of Labor or the IRS.

Major reporting and disclosure requirements:
  • Summary Plan Description (SPD) - Primary vehicle for explaining a plan's provisions and how it operates to plan participants. Must be made distributed to participants within 120 days of plan and within 90 days to new participants being covered. Updated SPD must be furnished every five years if changes are made; otherwise, every 10 years.
  • Form 5500 (Annual Report) - Annual reporting form filed with the IRS and the Department of Labor.
  • Summary Annual Report (SAR) - Narrative summary of Form 5500. Must be distributed automatically to participants within 9 months after end of plan year or 2 months after due date for Form 5500.
  • Individual benefit statements - Explanation of total accrued benefits and total nonforfeitable pension benefits, if any, which have accrued, or the earliest date on which benefits become nonforfeitable. Generally, must be furnished within 30 days of a written request from a plan participant, but not more than once a year.
  • Plan documents - Plan administrator must furnish copies of certain documents within 30 days of a written request and must maintain copies available for inspection.


Suitability

Related Articles
  1. Retirement

    403(b)s Among Plans Not Covered by New Fiduciary Rule

    Some retirement plans, including 403(b)s, are not covered by the DOL's new fiduciary rule. Here's what it means.
  2. Retirement

    Why Retirement Plan Sponsors Could Face Litigation

    A Supreme Court decision makes it easier for retirement plan participants to sue their employers. Apathy is not a strategy for plan sponsors.
  3. Financial Advisor

    Understanding Rules on Defined Benefit Pension Plans

    Defined benefit plans offer advantages to both employers and employees. Employers must understand the federal tax rules when establishing these plans.
  4. Financial Advisor

    The 4-1-1 on 403(b) Plans

    These plans resemble 401(k) plans in many respects, but are specially designed for nonprofit entities.
  5. Financial Advisor

    The Impact of Fiduciary Rules on 401(k) Advisors

    The final version of the DOL’s fiduciary rule provides some relief for advisors who serve 401(k) plans.
  6. Financial Advisor

    Are Cash Balance Pensions the Best for Small Biz?

    Are cash balance pensions the right solution for your small business clients? Here's why they may or may not work for your firm.
  7. Retirement

    Is Your Defined-Benefit Pension Plan Safe?

    Your plan may not last in a rocky market. Find out whether your savings will be affected.
  8. Financial Advisor

    Retirement Planning for the Self-Employed

    How to select a qualified retirement plan if you are self-employed and have no employees.
  9. Retirement

    Is Your 401(k) Administrator Competent?

    The more that employees know about their employee 401(k) plans, the better. But what doesn't your administrator know?
  10. Investing

    PBGC to Start Reuniting Lost 401(k)s With Owners

    The Pension Benefit Guaranty Corporation will extend its program to recover lost pension plans to include defined contribution plans like 401(k)s.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center