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Regulation and Compliance > Litigation

EBSA To Change Plan Settlement Rules

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The Employee Benefits Security Administration is trying to make it easier for benefit plan administrations to cope with employer bankruptcies.

EBSA, an arm of the U.S. Department of Labor, today has proposed a change to the Settlement Class Exemption.

The exemption deals with the sorts of assets plan fiduciaries can accept on behalf of a plan in connection with efforts to settle litigation with related parties.

Normally, plan fiduciaries can only accept cash. They have had to apply for individual exemptions to hold warrants or most bonds.

EBSA now is proposing to permit fiduciaries to accept more types of non-cash consideration if the consideration can be objectively valued, and if the transaction is otherwise beneficial to the employee benefit plan, EBSA officials say in a preamble to the proposed amendment to the class exemption, which appears today in the Federal Register.

The proposal would amend Prohibited Transaction Exemption 2003-39 to permit plans to acquire, hold or sell “non-qualifying employer securities,” such as warrants and stock rights in cases in which the securities are received in settlement of litigation, including bankruptcy proceedings.

The proposal also would establish guidelines for determining what an independent plan fiduciary must do to assess the reasonableness of a settlement, including any attorney’s fee award or other sums paid from the settlement proceeds, officials say.

“Currently, the independent fiduciary must assess the reasonableness of the settlement in light of the risks and costs of litigation, and the value of claims foregone,” officials write in the preamble to the proposed exemption. “The [Labor] Department has become concerned that some independent fiduciaries, and those responsible for their retention, are viewing this condition too narrowly.”

The authorizing fiduciary “may not exclude consideration of the attorney’s fee award or any other sums to be paid from the recovery (e.g., consultants) in connection with the settlement of the litigation,” EBSA officials write.

A copy of the proposed exemption amendment is available


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