Under ERISA, which statement about prohibited transactions is correct?

Under ERISA, which statement about prohibited transactions is correct?

• A. Prohibited transactions are never allowed, and may result in a fine or penalty.
• B. Prohibited transactions are allowed as long as the client's best interests are served.
• C. Prohibited transactions are allowed, but an exemption must be met.
• D. There are no prohibited transactions under ERISA, but there is an expected code of conduct.

Answer: (C)

Under ERISA, fiduciaries are barred from certain dealings with plan assets to prevent self-dealing and conflicts of interest. But not all prohibited transactions are forever banned—there are exemptions that allow specific actions if the conditions are met. So the right statement is that a transaction is allowed only if an exemption applies and the required conditions are satisfied. Exemptions come from statutory law or Department of Labor class exemptions and set safeguards like fair pricing, independence, and proper disclosure. If the transaction falls under an applicable exemption, it can proceed; otherwise it’s prohibited and could trigger penalties. The idea that prohibited transactions are never allowed is too rigid because exemptions exist. The notion that they’re allowed simply because they serve the client’s best interests ignores the need for an exemption and the established rules. The claim that there are no prohibited transactions contradicts ERISA’s framework, which explicitly restricts certain fiduciary dealings unless exempted.

Under ERISA, fiduciaries are barred from certain dealings with plan assets to prevent self-dealing and conflicts of interest. But not all prohibited transactions are forever banned—there are exemptions that allow specific actions if the conditions are met. So the right statement is that a transaction is allowed only if an exemption applies and the required conditions are satisfied. Exemptions come from statutory law or Department of Labor class exemptions and set safeguards like fair pricing, independence, and proper disclosure. If the transaction falls under an applicable exemption, it can proceed; otherwise it’s prohibited and could trigger penalties.

The idea that prohibited transactions are never allowed is too rigid because exemptions exist. The notion that they’re allowed simply because they serve the client’s best interests ignores the need for an exemption and the established rules. The claim that there are no prohibited transactions contradicts ERISA’s framework, which explicitly restricts certain fiduciary dealings unless exempted.