Harley v. 3M: revisiting the DOL's interpretation of ERISA section 408.(Department of Labor)

In addition to setting out a list of requirements that fiduciaries must satisfy, the Employee Retirement Income Security Act of 1974 (ERISA) also includes a list of fiduciary don'ts. Some of these are set forth as ERISA's prohibited transaction provisions; the others are found in its self-dealing prohibitions.

Historically, the Department of Labor (DOL) has taken a much more restrictive view of the self-dealing prohibitions, often concluding that per se statutory exceptions to the prohibited transaction provisions do not necessarily constitute per se exceptions from ERISA's self-dealing prohibitions. A recent decision by the Eighth Circuit calls this long-held interpretation into question, at least in the context of ERISA's reasonable compensation exception.

STATUTORY AND REGULATORY ANALYSIS

ERISA Section 406 sets forth both the prohibited transaction provisions and ERISA's self-dealing prohibitions. With respect to the latter, a fiduciary is specifically prohibited from:

1. Dealing with the assets of the plan for the fiduciary's own account;

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

3. Receiving any consideration for the fiduciary's own personal account from any party dealing with the plan in connection with a transaction involving the assets of the plan. (1)

ERISA Section 406(a), which specifically sets forth the prohibited transaction provisions, begins by specifying that the prohibited transaction prohibitions that follow apply "except as provided in Section 408." Since this general exemption is only contained in subsection (a) of ERISA and not in subsection (b), which specifically references the self-dealing prohibitions, …