What does Prohibited Transactions mean? Read on to discover the definition & meaning of the term Prohibited Transactions - to help you better understand the language used in insurance policies.
Two types of transactions (involving employee pension and welfare plan funds) that are prohibited under the Employee Retirement Income Security Act (ERISA). These are (1) self-dealing and (2) party-in-interest transactions. Under the first type, fiduciaries are barred from using employee benefit plan assets to profit personally, such as by investing pension plan monies in a company in which a fiduciary holds a majority interest. The second type, party-in-interest transactions, is what would otherwise be legitimate business transactions, yet are prohibited if they are conducted with a "party-in-interest." The Act defines a party-in-interest as any fiduciary, legal counsel, employee of an employer-sponsored benefit plan, or service provider to the plan. For example, pension plan funds cannot be used to buy or sell property to or from the family member of any trustee or anyone else who is a party-in-interest. In the event a fiduciary engages in a prohibited transaction, various monetary penalties will be levied against the employer-sponsor of the plan.
We hope the you have a better understanding of the meaning of Prohibited Transactions.