EBSA Allows Plan Legal Claims Settlements

December 31, 2003 (PLANSPONSOR.com) - Employee benefit plans may settle legal claims for cash without violating ERISA's prohibited transaction rules.

>According to an exemption released Wednesday by the US Department of Labor’s Employee Benefits Security Administration (EBSA), the rule allows plans to release such claims in exchange for cash, securities and the promise of additional benefits.   The exemption also allows related parties to pay amounts owed to plans over time.

>The exemption requires that the terms of the settlement be approved by a fiduciary not involved in the transaction that was the subject of the settled litigation.   Also, the settlement has to be reasonable in light of the plan’s likelihood of full recovery, the risks and costs of litigation, and the value of foregone claims.   “The proposal should remove any uncertainty and allow plan fiduciaries to properly carry out their responsibilities under ERISA by focusing on the merits of the settlement,” the EBSA said in a statement.

For more information, go to  www.dol.gov/ebsa .