DoL Proposes New Asset Types Allowed for Settlements

November 20, 2007 ( - The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) has announced a proposed amendment to an existing class exemption that would expand the categories of assets under the exemption that plans can accept to settle litigation with related parties, if the transaction is otherwise beneficial to the employee benefit plan.

According to the announcement, 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, EBSA said in its news release.

Prohibited Transaction Exemption (PTE) 2003-39 is 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 exemption currently requires that the consideration paid by related parties must generally be in the form of cash.

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