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. Investing

    401(k) Lawsuits: How Employers Are Protecting Themselves

    Some companies are making it harder for employees to sue over retirement fund problems. Here is what you need to know about the trend.
  2. Financial Advisor

    Are You ERISA Compliant? Follow This Checklist

    Following a checklist can make achieving compliance with Employee Retirement Income Security Act of 1974 (ERISA) requirements much less burdensome.
  3. 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.
  4. 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.
  5. Managing Wealth

    5 Ways to Limit Your Fiduciary Liability

    Learn the best practices plan sponsors can use to limit their fiduciary liabilities while improving their plan's overall effectiveness.
  6. Financial Advisor

    Advisors: Here's Your DoL Fiduciary Rule Checklist

    Advisors should start working with retirement plan sponsors sooner rather than later to help them become compliant with the new fiduciary rule.
  7. 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.
  8. Retirement

    5 Lesser-Known Retirement And Benefit Plans

    These plans aren't widely used, but they fill a specific niche for employees in certain situations.
  9. 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.
  10. Financial Advisor

    Retirement Planning for the Self-Employed

    How to select a qualified retirement plan if you are self-employed and have no employees.
Frequently Asked Questions
  1. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  2. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  3. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
  4. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ...
Trading Center