U.S. Labor Department proposes expansion of the class exemption on settlement of litigation

Archived News Release — Caution: Information may be out of date.

Washington – The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) today announced a proposed amendment to an existing class exemption, commonly known as the Settlement Class Exemption, from the prohibited transaction restrictions of the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code.

The proposal would expand the categories of assets that can be accepted under the exemption to settle litigation with related parties, if the transaction is otherwise beneficial to the employee benefit plan.

Prohibited Transaction Exemption (PTE) 2003-39 generally exempts a plan’s receipt of consideration from a related party in partial or complete settlement of actual or threatened litigation, as well as extensions of credit from a plan to cover settlement payments made in installments by the related party. Currently, the consideration paid by the related party must generally be in the form of cash.

The proposed amendment would expand the categories of assets that may be accepted by plans in the settlement of litigation, subject to certain conditions. The amendment would permit the receipt of non-cash consideration in settlement of a claim (including the promise of future employer contributions), but only in instances where the consideration can be objectively valued. The proposal also would amend PTE 2003-39 to permit plans to acquire, hold, or sell non-qualifying employer securities such as warrants and stock rights where such securities are received in settlement of litigation, including bankruptcy proceedings. In addition, the proposal would clarify the independent fiduciary’s responsibility for assessing the reasonableness of the entire settlement, including any attorney’s fee award or other sums paid from the settlement proceeds.

The complete text of the proposal will be published in the November 21, 2007 Federal Register.

U.S. Department of Labor news releases are accessible on the Department's Newsroom page. The information in this news release will be made available in alternate format upon request (large print, Braille, audio tape or disc) from the COAST office. Please specify which news release when placing your request at 202.693.7828 or TTY 202.693.7755. The U.S. Department of Labor is committed to providing America's employers and employees with easy access to understandable information on how to comply with its laws and regulations. For more information, please visit the Department's Compliance Assistance page.

Archived News Release — Caution: Information may be out of date.