U.S. Labor Department publishes amendment to class exemption on settlement of litigation

Washington – The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) today announced an amendment to an existing class exemption that expands the category of assets that can be accepted as settlement of litigation between employee benefit plans and related parties.

The amendment expands the types of assets that can be accepted in settlement of litigation to include non-cash assets that can be valued using independent third parties or an objective methodology. In addition, the amendment allows plans to acquire, hold or sell employer securities received in settlement of litigation, and clarifies the duties of the independent fiduciary charged with settling litigation on behalf of a plan.

On Dec. 31, 2003, the department published Prohibited Transaction Exemption (PTE) 2003-39 that provides an exemption under the Employee Retirement Income Security Act (ERISA) for a plan to receive consideration from related parties to partially or completely settle litigation. The final exemption allowed plans to release claims against related parties in exchange for cash, securities (including employer securities) and the promise of additional benefits. The exemption also allows related parties to pay amounts owed to plans over time.

Among the conditions of PTE 2003-39 is the requirement that the terms of the settlement be approved by a fiduciary not involved in the transaction that was the subject of the litigation. It also requires the settlement to be reasonable, in light of the plan's likelihood of full recover, the risks and costs of litigation and the value of claims foregone.

The amendment will be published in the June 15 issue of the Federal Register.

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