Supreme Court Agrees to Decide Pleading Standard for Prohibited Transaction Cases

The U.S. Supreme Court has agreed to determine the appropriate pleading standard that will apply in litigation involving the prohibited transactions rules. By way of background, the prohibited transaction rules prevent plan fiduciaries from transacting with certain interested parties unless a prohibited transaction exemption applies. The issue is whether the plaintiff sufficiently pleads their case (to survive a motion to dismiss) by pleading that the transaction involved providing services between the plan and an interested party (such as a service provider or recordkeeper) or (2) whether the plaintiff must also provide facts alleging that a prohibited transaction exemption is unavailable or show that the plan fiduciary and transaction involved some type of misconduct. The decision will resolve a three-way split between the circuits and, importantly, have a significant impact on the level of exposure to litigation for plan sponsors. For more information on the prohibited transaction rules, visit Tax Facts Online. Read More: Link to Q3980.