IRA Rollover

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IRC and ERISA Law on prohibited transactions

Both ERISA Law and the IRC Law prohibit plan assets from being used by a fiduciary for certain transactions (known as “prohibited transactions”). These prohibited transactions include the sale, leasing, or lending of plan assets or extension of credit between a plan and a broker/dealer who provides services to the plan.

Plan fiduciaries are also forbidden to deal in plan assets for their own benefit or for the benefit of a third party with whom the fiduciary is affiliated. ERISA ’s prohibited transaction rules treat IRA owners and self-employed Keogh participants as fiduciaries of their individual retirement accounts.

Similar rules prohibiting conflicts of interest, self-dealing and personal profits are also found in state laws governing trusts and endowment funds other than employee benefit plans.

ERISA law and the IRC law Prohibited Transaction Rules apply to all pension, profit sharing and welfare plans, and also to IRA, SEP IRA, SAR SEP IRA, 403b retirement plans and qualified pension and profit sharing plans covering only one participant, owners or partners (generally referred to as Keogh plans). These restrictions apply under Internal Revenue Service Code 4975.

ERISA limitations do not apply to “blind transactions” with banks or investment advisers which are handled on a non-disclosed basis if the financial institution does not know and has no reason to believe that the transactions are for an ERISA plan. However, at least one court has ruled that oral notice to a broker is deemed disclosure to the firm that the transaction involves plan assets.