EBSA Expands Allowable Litigation Settlements

An EBSA news release said the change expands the types of assets that can be accepted as part of litigation settlements with related parties 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 litigation settlements, and clarifies the duties of the independent fiduciary charged with settling litigation on behalf of a plan.

On December 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 assets from related parties to partially or completely settle litigation. The final exemption allowed plans to accept 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 recovery, the risks and costs of litigation and the value of claims foregone, according to the announcement.

The exemption is available through the Federal Register through http://www.gpoaccess.gov/fr/search.html.