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COPYRIGHT 2004 Aspen Publishers, Inc.
For nearly thirty years, the Department of Labor (DOL) primarily relied on two mechanisms for issuing interpretative guidance under ERISA: (1) the promulgation of regulation and (2) the issuance of advisory opinions. In addition, prohibited transaction issues that could not be resolved through regulation or advisory opinions could be addressed through the prohibited transaction exemption application process. In 2002, the DOL developed Field Assistance Bulletins (FABs) as a new mechanism for publicizing its interpretations. Ostensibly in the form of memoranda to its enforcement offices, however, also made available to the public on its Web site, FABs provide an informal format through which the DOL can quickly publicize its views on topical issues. At the same time, the DOL discontinued its practice of resolving ambiguities in the scope of ERISA's prohibited transaction rules through the prohibited transaction exemption process. While these measures were undoubtedly intended to conserve resources and expedite the DOffs regulatory efforts, they may have the unintended consequence of increasing the risk of liability to fiduciaries and others who deal with employee benefit plans.
The Employee Benefits Security Administration (EBSA) within the DOL has long been criticized for its lack of alacrity in responding to changes in the business world. In recent years, the DOL has sought to change that image. One recent development is the adoption of FABs as a new type of informal guidance issued without input from the public. A less visible change is a more restricted view of the transactions for which the DOL will grant exemptive relief from ERISA's prohibited transaction rules. In particular, the DOL currently has a policy in place under which it will not grant exemptive relief unless it is clear that the underlying transactions are, in fact, prohibited under ERISA Section 406.
While these developments are well-intended (and one does not want to look a proverbial gift horse in the mouth), they may have some unintended drawbacks for the benefits industry. With respect to the development of FABs, informal guidance that has not had the benefit of input from the public or the scrutiny accorded to regulations may not have the same level of quality as more formal guidance. Perhaps a more important issue: because informal guidance is not subject to the same level of judicial deference as are regulations that have been adopted in conformance with the Administrative Procedures Act (APA), those who rely on that guidance may be unpleasantly surprised if a court subsequently disagrees with the DOL's informal interpretation.
In addition, although no one welcomes submitting an exemption application or the subsequent review process, the DOL's past practice of granting exemptive relief in situations in which it was unable to conclude that a transaction would not violate ERISA's prohibited transaction rules made it possible for fiduciaries and other "parties in interest" to proceed with transactions where the application of ERISA's prohibited transaction rules is unclear. This is frequently the case, for example, where a fiduciary has a de minimis interest in some aspect of the transaction, or where a plan fiduciary is subject to a conflict of interest but the plan's interests are effectively represented by an independent fiduciary.
Although the DOL's efforts to become more responsive to the needs of the...
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