29 U.S.C. § 1107 — Limitation with respect to acquisition and

Page 513 TITLE 29—LABOR § 1107 1 So in original. Probably should be followed by a dash. (B) lending of money or other extension of credit between the plan and a party in inter- est; (C) furnishing of goods, services, or facili- ties between the plan and a party in inter- est; (D) transfer to, or use by or for the benefit of a party in interest, of any assets of the plan; or (E) acquisition, on behalf of the plan, of any employer security or employer real property in violation of section 1107(a) of this title. (2) No fiduciary who has authority or discre- tion to control or manage the assets of a plan shall permit the plan to hold any employer se- curity or employer real property if he knows or should know that holding such security or real property violates section 1107(a) of this title. (b) Transactions between plan and fiduciary A fiduciary with respect to a plan shall not— (1) deal with the assets of the plan in his own interest or for his own account, (2) in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, or (3) receive any consideration for his own per- sonal account from any party dealing with such plan in connection with a transaction in- volving the assets of the plan. (c) Transfer of real or personal property to plan by party in interest A transfer of real or personal property by a party in interest to a plan shall be treated as a sale or exchange if the property is subject to a mortgage or similar lien which the plan assumes or if it is subject to a mortgage or similar lien which a party-in-interest placed on the property within the 10-year period ending on the date of the transfer. (Pub. L. 93–406, title I, § 406, Sept. 2, 1974, 88 Stat. 879.) § 1107. Limitation with respect to acquisition and holding of employer securities and employer real property by certain plans (a) Percentage limitation Except as otherwise provided in this section and section 1114 of this title: (1) A plan may not acquire or hold— (A) any employer security which is not a qualifying employer security, or (B) any employer real property which is not qualifying employer real property. (2) A plan may not acquire any qualifying employer security or qualifying employer real property, if immediately after such acquisi- tion the aggregate fair market value of em- ployer securities and employer real property held by the plan exceeds 10 percent of the fair market value of the assets of the plan. (3)(A) After December 31, 1984, a plan may not hold any qualifying employer securities or qualifying employer real property (or both) to the extent that the aggregate fair market value of such securities and property deter- mined on December 31, 1984, exceeds 10 percent of the greater of— (i) the fair market value of the assets of the plan, determined on December 31, 1984, or (ii) the fair market value of the assets of the plan determined on January 1, 1975. (B) Subparagraph (A) of this paragraph shall not apply to any plan which on any date after December 31, 1974; and before January 1, 1985, did not hold employer securities or employer real property (or both) the aggregate fair mar- ket value of which determined on such date exceeded 10 percent of the greater of 1 (i) the fair market value of the assets of the plan, determined on such date, or (ii) the fair market value of the assets of the plan determined on January 1, 1975. (4)(A) After December 31, 1979, a plan may not hold any employer securities or employer real property in excess of the amount specified in regulations under subparagraph (B). This subparagraph shall not apply to a plan after the earliest date after December 31, 1974, on which it complies with such regulations. (B) Not later than December 31, 1976, the Secretary shall prescribe regulations which shall have the effect of requiring that a plan divest itself of 50 percent of the holdings of employer securities and employer real prop- erty which the plan would be required to di- vest before January 1, 1985, under paragraph (2) or subsection (c) (whichever is applicable). (b) Exception (1) Subsection (a) of this section shall not apply to any acquisition or holding of qualifying employer securities or qualifying employer real property by an eligible individual account plan. (2)(A) If this paragraph applies to an eligible individual account plan, the portion of such plan which consists of applicable elective deferrals (and earnings allocable thereto) shall be treated as a separate plan— (i) which is not an eligible individual ac- count plan, and (ii) to which the requirements of this section apply. (B)(i) This paragraph shall apply to any eligi- ble individual account plan if any portion of the plan’s applicable elective deferrals (or earnings allocable thereto) are required to be invested in qualifying employer securities or qualifying em- ployer real property or both— (I) pursuant to the terms of the plan, or (II) at the direction of a person other than the participant on whose behalf such elective deferrals are made to the plan (or a bene- ficiary). (ii) This paragraph shall not apply to an indi- vidual account plan for a plan year if, on the last day of the preceding plan year, the fair mar- ket value of the assets of all individual account plans maintained by the employer equals not more than 10 percent of the fair market value of Page 514 TITLE 29—LABOR § 1107 the assets of all pension plans (other than multi- employer plans) maintained by the employer. (iii) This paragraph shall not apply to an indi- vidual account plan that is an employee stock ownership plan as defined in section 4975(e)(7) of title 26. (iv) This paragraph shall not apply to an indi- vidual account plan if, pursuant to the terms of the plan, the portion of any employee’s applica- ble elective deferrals which is required to be in- vested in qualifying employer securities and qualifying employer real property for any year may not exceed 1 percent of the employee’s com- pensation which is taken into account under the plan in determining the maximum amount of the employee’s applicable elective deferrals for such year. (C) For purposes of this paragraph, the term ‘‘applicable elective deferral’’ means any elec- tive deferral (as defined in section 402(g)(3)(A) of title 26) which is made pursuant to a qualified cash or deferred arrangement as defined in sec- tion 401(k) of title 26. (3) CROSS REFERENCES.— (A) For exemption from diversification require- ments for holding of qualifying employer securities and qualifying employer real property by eligible individual account plans, see section 1104(a)(2) of this title. (B) For exemption from prohibited transactions for certain acquisitions of qualifying employer secu- rities and qualifying employer real property which are not in violation of 10 percent limitation, see sec- tion 1108(e) of this title. (C) For transitional rules respecting securities or real property subject to binding contracts in effect on June 30, 1974, see section 1114(c) of this title. (D) For diversification requirements for quali- fying employer securities held in certain individual account plans, see section 1054(j) of this title. (c) Election (1) A plan which makes the election, under paragraph (3) shall be treated as satisfying the requirement of subsection (a)(3) if and only if employer securities held on any date after De- cember 31, 1974 and before January 1, 1985 have a fair market value, determined as of December 31, 1974, not in excess of 10 percent of the lesser of— (A) the fair market value of the assets of the plan determined on such date (disregarding any portion of the fair market value of em- ployer securities which is attributable to ap- preciation of such securities after December 31, 1974) but not less than the fair market value of plan assets on January 1, 1975, or (B) an amount equal to the sum of (i) the total amount of the contributions to the plan received after December 31, 1974, and prior to such date, plus (ii) the fair market value of the assets of the plan, determined on January 1, 1975. (2) For purposes of this subsection, in the case of an employer security held by a plan after January 1, 1975, the ownership of which is de- rived from ownership of employer securities held by the plan on January 1, 1975, or from the exer- cise of rights derived from such ownership, the value of such security held after January 1, 1975, shall be based on the value as of January 1, 1975, of the security from which ownership was de- rived. The Secretary shall prescribe regulations to carry out this paragraph. (3) An election under this paragraph may not be made after December 31, 1975. Such an elec- tion shall be made in accordance with regula- tions prescribed by the Secretary, and shall be irrevocable. A plan may make an election under this paragraph only if on January 1, 1975, the plan holds no employer real property. After such election and before January 1, 1985 the plan may not acquire any employer real property. (d) Definitions For purposes of this section— (1) The term ‘‘employer security’’ means a security issued by an employer of employees covered by the plan, or by an affiliate of such employer. A contract to which section 1108(b)(5) of this title applies shall not be treated as a security for purposes of this sec- tion. (2) The term ‘‘employer real property’’ means real property (and related personal property) which is leased to an employer of employees covered by the plan, or to an affil- iate of such employer. For purposes of deter- mining the time at which a plan acquires em- ployer real property for purposes of this sec- tion, such property shall be deemed to be ac- quired by the plan on the date on which the plan acquires the property or on the date on which the lease to the employer (or affiliate) is entered into, whichever is later. (3)(A) The term ‘‘eligible individual account plan’’ means an individual account plan which is (i) a profit-sharing, stock bonus, thrift, or savings plan; (ii) an employee stock ownership plan; or (iii) a money purchase plan which was in existence on September 2, 1974, and which on such date invested primarily in qualifying employer securities. Such term excludes an in- dividual retirement account or annuity de- scribed in section 408 of title 26. (B) Notwithstanding subparagraph (A), a plan shall be treated as an eligible individual account plan with respect to the acquisition or holding of qualifying employer real prop- erty or qualifying employer securities only if such plan explicitly provides for acquisition and holding of qualifying employer securities or qualifying employer real property (as the case may be). In the case of a plan in existence on September 2, 1974, this subparagraph shall not take effect until January 1, 1976. (C) The term ‘‘eligible individual account plan’’ does not include any individual account plan the benefits of which are taken into ac- count in determining the benefits payable to a participant under any defined benefit plan. (4) The term ‘‘qualifying employer real prop- erty’’ means parcels of employer real prop- erty— (A) if a substantial number of the parcels are dispersed geographically; (B) if each parcel of real property and the improvements thereon are suitable (or adaptable without excessive cost) for more than one use; (C) even if all of such real property is leased to one lessee (which may be an em- ployer, or an affiliate of an employer); and (D) if the acquisition and retention of such property comply with the provisions of this Page 515 TITLE 29—LABOR § 1107 part (other than section 1104(a)(1)(B) of this title to the extent it requires diversification, and sections 1104(a)(1)(C), 1106 of this title, and subsection (a) of this section). (5) The term ‘‘qualifying employer security’’ means an employer security which is— (A) stock, (B) a marketable obligation (as defined in subsection (e)), or (C) an interest in a publicly traded part- nership (as defined in section 7704(b) of title 26), but only if such partnership is an exist- ing partnership as defined in section 10211(c)(2)(A) of the Revenue Act of 1987 (Public Law 100–203). After December 17, 1987, in the case of a plan other than an eligible individual account plan, an employer security described in subpara- graph (A) or (C) shall be considered a quali- fying employer security only if such employer security satisfies the requirements of sub- section (f)(1). (6) The term ‘‘employee stock ownership plan’’ means an individual account plan— (A) which is a stock bonus plan which is qualified, or a stock bonus plan and money purchase plan both of which are qualified, under section 401 of title 26, and which is de- signed to invest primarily in qualifying em- ployer securities, and (B) which meets such other requirements as the Secretary of the Treasury may pre- scribe by regulation. (7) A corporation is an affiliate of an em- ployer if it is a member of any controlled group of corporations (as defined in section 1563(a) of title 26, except that ‘‘applicable per- centage’’ shall be substituted for ‘‘80 percent’’ wherever the latter percentage appears in such section) of which the employer who maintains the plan is a member. For purposes of the pre- ceding sentence, the term ‘‘applicable percent- age’’ means 50 percent, or such lower percent- age as the Secretary may prescribe by regula- tion. A person other than a corporation shall be treated as an affiliate of an employer to the extent provided in regulations of the Sec- retary. An employer which is a person other than a corporation shall be treated as affili- ated with another person to the extent pro- vided by regulations of the Secretary. Regula- tions under this paragraph shall be prescribed only after consultation and coordination with the Secretary of the Treasury. (8) The Secretary may prescribe regulations specifying the extent to which conversions, splits, the exercise of rights, and similar transactions are not treated as acquisitions. (9) For purposes of this section, an arrange- ment which consists of a defined benefit plan and an individual account plan shall be treat- ed as 1 plan if the benefits of such individual account plan are taken into account in deter- mining the benefits payable under such de- fined benefit plan. (e) Marketable obligations For purposes of subsection (d)(5), the term ‘‘marketable obligation’’ means a bond, deben- ture, note, or certificate, or other evidence of in- debtedness (hereinafter in this subsection re- ferred to as ‘‘obligation’’) if— (1) such obligation is acquired— (A) on the market, either (i) at the price of the obligation prevailing on a national secu- rities exchange which is registered with the Securities and Exchange Commission, or (ii) if the obligation is not traded on such a na- tional securities exchange, at a price not less favorable to the plan than the offering price for the obligation as established by current bid and asked prices quoted by per- sons independent of the issuer; (B) from an underwriter, at a price (i) not in excess of the public offering price for the obligation as set forth in a prospectus or of- fering circular filed with the Securities and Exchange Commission, and (ii) at which a substantial portion of the same issue is ac- quired by persons independent of the issuer; or (C) directly from the issuer, at a price not less favorable to the plan than the price paid currently for a substantial portion of the same issue by persons independent of the issuer; (2) immediately following acquisition of such obligation— (A) not more than 25 percent of the aggre- gate amount of obligations issued in such issue and outstanding at the time of acquisi- tion is held by the plan, and (B) at least 50 percent of the aggregate amount referred to in subparagraph (A) is held by persons independent of the issuer; and (3) immediately following acquisition of the obligation, not more than 25 percent of the as- sets of the plan is invested in obligations of the employer or an affiliate of the employer. (f) Maximum percentage of stock held by plan; time of holding or acquisition; necessity of legally binding contract (1) Stock satisfies the requirements of this paragraph if, immediately following the acquisi- tion of such stock— (A) no more than 25 percent of the aggregate amount of stock of the same class issued and outstanding at the time of acquisition is held by the plan, and (B) at least 50 percent of the aggregate amount referred to in subparagraph (A) is held by persons independent of the issuer. (2) Until January 1, 1993, a plan shall not be treated as violating subsection (a) solely by holding stock which fails to satisfy the require- ments of paragraph (1) if such stock— (A) has been so held since December 17, 1987, or (B) was acquired after December 17, 1987, pursuant to a legally binding contract in ef- fect on December 17, 1987, and has been so held at all times after the acquisition. (Pub. L. 93–406, title I, § 407, Sept. 2, 1974, 88 Stat. 880; Pub. L. 100–203, title IX, § 9345(a)(1), (2), (b), Dec. 22, 1987, 101 Stat. 1330–373; Pub. L. 101–239, title VII, §§ 7881(l)(1)–(4), 7891(a)(1), 7894(e)(2), Dec. 19, 1989, 103 Stat. 2443, 2445, 2450; Pub. L. 101–540, § 1, Nov. 8, 1990, 104 Stat. 2379; Pub. L. Page 516 TITLE 29—LABOR § 1108 105–34, title XV, § 1524(a), Aug. 5, 1997, 111 Stat. 1071; Pub. L. 109–280, title IX, § 901(b)(2), Aug. 17, 2006, 120 Stat. 1032.) Editorial Notes REFERENCES IN TEXT Section 10211(c)(2)(A) of the Revenue Act of 1987 (Pub- lic Law 100–203), referred to in subsec. (d)(5)(C), is set out as a note under section 7704 of Title 26, Internal Revenue Code. AMENDMENTS 2006—Subsec. (b)(3)(D). Pub. L. 109–280 added subpar. (D). 1997—Subsec. (b)(2), (3). Pub. L. 105–34 added par. (2) and redesignated former par. (2) as (3). 1990—Subsec. (d)(5). Pub. L. 101–540 amended par. (5) generally. Prior to amendment, par. (5) read as follows: ‘‘The term ‘qualifying employer security’ means an em- ployer security which is stock or a marketable obliga- tion (as defined in subsection (e)). After December 17, 1987, in the case of a plan other than an eligible indi- vidual account plan, stock shall be considered a quali- fying employer security only if such stock satisfies the requirements of subsection (f)(1).’’ 1989—Subsec. (d)(3)(A), (6)(A), (7). Pub. L. 101–239, § 7891(a)(1), substituted ‘‘Internal Revenue Code of 1986’’ for ‘‘Internal Revenue Code of 1954’’, which for purposes of codification was translated as ‘‘title 26’’ thus requir- ing no change in text. Subsec. (d)(3)(C). Pub. L. 101–239, § 7881(l)(1), realigned margin. Subsec. (d)(6)(A). Pub. L. 101–239, § 7894(e)(2), sub- stituted ‘‘money purchase plan’’ for ‘‘money purchase’’ and ‘‘employer securities’’ for ‘‘employee securities’’. Subsec. (d)(9). Pub. L. 101–239, § 7881(l)(2), substituted ‘‘such individual account plan’’ for ‘‘such arrange- ment’’ and realigned margin. Subsec. (f)(1). Pub. L. 101–239, § 7881(l)(3)(A), (4), sub- stituted ‘‘paragraph’’ for ‘‘subsection’’ and ‘‘if, imme- diately following the acquisition of such stock’’ for ‘‘if’’. Subsec. (f)(3). Pub. L. 101–239, § 7881(l)(3)(B), struck out par. (3) which read as follows: ‘‘After December 17, 1987, no plan may acquire stock which does not satisfy the requirements of paragraph (1) unless the acquisi- tion is made pursuant to a legally binding contract in effect on such date.’’ 1987—Subsec. (d)(3)(C). Pub. L. 100–203, § 9345(a)(1), added subpar. (C). Subsec. (d)(5). Pub. L. 100–203, § 9345(b)(1), inserted at end ‘‘After December 17, 1987, in the case of a plan other than an eligible individual account plan, stock shall be considered a qualifying employer security only if such stock satisfies the requirements of subsection (f)(1).’’ Subsec. (d)(9). Pub. L. 100–203, § 9345(a)(2), added par. (9). Subsec. (f). Pub. L. 100–203, § 9345(b)(2), added subsec. (f). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2006 AMENDMENT Amendment by Pub. L. 109–280 applicable to plan years beginning after Dec. 31, 2006, with special rules for collectively bargained agreements and certain em- ployer securities held in an ESOP, see section 901(c) of Pub. L. 109–280, set out as a note under section 401 of Title 26, Internal Revenue Code. EFFECTIVE DATE OF 1997 AMENDMENT Pub. L. 105–34, title XV, § 1524(b), Aug. 5, 1997, 111 Stat. 1072, as amended by Pub. L. 107–16, title VI, § 655(a), June 7, 2001, 115 Stat. 131, provided that: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section [amending this section] shall apply to elective deferrals for plan years beginning after December 31, 1998. ‘‘(2) NONAPPLICATION TO PREVIOUSLY ACQUIRED PROP- ERTY.—The amendments made by this section shall not apply to any elective deferral which is invested in as- sets consisting of qualifying employer securities, quali- fying employer real property, or both, if such assets were acquired before January 1, 1999.’’ [Pub. L. 107–16, title VI, § 655(b), June 7, 2001, 115 Stat. 131, provided that: ‘‘The amendment made by this sec- tion [amending section 1524(b) of Pub. L. 105–34, set out above] shall apply as if included in the provision of the Taxpayer Relief Act of 1997 [Pub. L. 105–34] to which it relates.’’] EFFECTIVE DATE OF 1990 AMENDMENT Pub. L. 101–540, § 2, Nov. 8, 1990, 104 Stat. 2379, pro- vided that: ‘‘The amendment made by section 1 [amending this section] shall apply to interests in pub- licly traded partnerships acquired before, on, or after January 1, 1987.’’ EFFECTIVE DATE OF 1989 AMENDMENT Amendment by section 7881(l)(1)–(4) of Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Pension Protection Act, Pub. L. 100–203, §§ 9302–9346, to which such amendment relates, see section 7882 of Pub. L. 101–239, set out as a note under section 401 of Title 26, Internal Revenue Code. Amendment by section 7891(a)(1) of Pub. L. 101–239 ef- fective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 7891(f) of Pub. L. 101–239, set out as a note under section 1002 of this title. Amendment by section 7894(e)(2) of Pub. L. 101–239 ef- fective, except as otherwise provided, as if originally included in the provision of the Employee Retirement Income Security Act of 1974, Pub. L. 93–406, to which such amendment relates, see section 7894(i) of Pub. L. 101–239, set out as a note under section 1002 of this title. EFFECTIVE DATE OF 1987 AMENDMENT Pub. L. 100–203, title IX, § 9345(a)(3), Dec. 22, 1987, 101 Stat. 1330–373, provided that: ‘‘The amendments made by this subsection [amending this section] shall apply with respect to arrangements established after Decem- ber 17, 1987.’’ REGULATIONS Secretary authorized, effective Sept. 2, 1974, to pro- mulgate regulations wherever provisions of this part call for the promulgation of regulations, see sections 1031 and 1114 of this title. § 1108. Exemptions from prohibited transactions (a) Grant of exemptions The Secretary shall establish an exemption procedure for purposes of this subsection. Pursu- ant to such procedure, he may grant a condi- tional or unconditional exemption of any fidu- ciary or transaction, or class of fiduciaries or transactions, from all or part of the restrictions imposed by sections 1106 and 1107(a) of this title. Action under this subsection may be taken only after consultation and coordination with the Secretary of the Treasury. An exemption grant- ed under this section shall not relieve a fidu- ciary from any other applicable provision of this chapter. The Secretary may not grant an ex- emption under this subsection unless he finds that such exemption is— (1) administratively feasible, (2) in the interests of the plan and of its par- ticipants and beneficiaries, and