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Certain transactions are prohibited under the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act of 1974 (ERISA). Prohibited transactions are reported in the Form 5500 filing and trigger taxes and other penalties.

The IRC and ERISA contain outright prohibitions against direct or indirect economic transactions involving plan assets and parties related to the plan (referred to as disqualified persons or parties in interest) unless the transaction is covered by an exemption.

Prohibited transactions include, but are not limited to, the direct or indirect sale, exchange, or lease of property; extension of credit; provision of goods or services; transfer or use of plan assets and certain investments in employer securities or employer real estate in excess of the legal limits. In addition, plan fiduciaries are prohibited from receiving a kickback from any person in connection with a transaction involving plan assets.

The definitions for both party in interest and disqualified person are complex and include plan fiduciaries, service providers, sponsoring employers, as well as individuals who are related to the foregoing by family or business ties.

Please contact your tax or legal advisor if you have questions whether a particular transaction is prohibited and reportable on Form 5500 and 5330.