They Are Called Prohibited for a Reason

We – meaning lawyers who do civil side work involving ERISA plans – mostly think about the rules against prohibited transactions from two perspectives. The first concerns whether clients can structure certain transactions or engage in specific plan actions without running afoul of the prohibited transaction rules. The second arises in litigation, where we either challenge certain plan actions as prohibited transactions or defend plan fiduciaries against claims that they engaged in prohibited transactions. What we don’t normally think of, though, is the idea that if a fiduciary goes just way too far over the line between prohibited and appropriate actions, a whole heck of a lot of hurt is coming down the pike; this isn’t typically on our radar screens because most plans and fiduciaries not only don’t want to get into the kind of trouble that would come from taking such a step, but also because most plans and fiduciaries, in my opinion (even if they are ones I am suing, rather than ones I am defending), have an overall bias towards generally trying to do the right thing. Here’s a very good story illustrating what happens when that dynamic isn’t in play, though, and a fiduciary invokes significant DOL action over prohibited transactions.

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