The law names who counts as a party in interest, and the list is wide.
A party in interest is not a bad actor. It is a status the statute gives to fiduciaries, service providers, the employer and people close to them. Here is the list, with plain examples.
Start With The Overview.
General information, not legal or tax advice. Check the cited sources before you act.
ERISA Prohibited Transactions Overview
Start here for the whole picture: the rule, who it reaches, the exemptions, the consequences and the coverage questions.
What ERISA Section 406 Prohibits
The two lists in the statute: transactions with parties in interest, and fiduciary self-dealing.
Prohibited Transaction Exemptions
The reasonable arrangements exemption, the new group health text and the exemption authority.
Nine Categories, A Through I.
ERISA section 3(14), 29 U.S.C. 1002(14), defines a party in interest in nine paragraphs. In summary: (A) any fiduciary, counsel or employee of the plan; (B) a person providing services to the plan; (C) an employer any of whose employees are covered by the plan; (D) an employee organization any of whose members are covered; (E) an owner of 50 percent or more of an employer or employee organization named in (C) or (D); (F) a relative of anyone in (A), (B), (C) or (E); (G) an entity that is 50 percent or more owned by persons in (A) through (E); (H) an employee, officer, director or 10 percent or more shareholder of a person in (B), (C), (D), (E) or (G), or of the plan; and (I) a 10 percent or more partner or joint venturer of a person in (B), (C), (D), (E) or (G).
For relatives, paragraph (F) lists a spouse, ancestor, lineal descendant and the spouse of a lineal descendant. The statute lets the Secretary of Labor set lower thresholds than 50 and 10 percent. We did not review whether any lower threshold has been set.
Who This Usually Means For An Employer.
These examples are our reading of the statute, not Department of Labor statements about any particular arrangement.
The employer is a party in interest under paragraph (C). So is a person who owns half or more of the employer, under (E), and that owner’s spouse or children under (F). A business that owner controls can fall under (G).
A third-party administrator, a pharmacy benefit manager or a consultant that provides services to the plan fits paragraph (B). A lawyer engaged for the plan fits the counsel language in (A). A person named as a fiduciary is in (A) as well.
Employees of the employer also reach the list through paragraph (H), which names an employee of a person described in (C).
A named owner’s family business that sells the plan a service is the classic case the family and ownership paragraphs were written to catch.
Party In Interest Is Not The Same As Fiduciary.
Fiduciary status is a separate definition, in 29 U.S.C. 1002(21)(A). A person is a fiduciary to the extent it exercises discretionary authority or control over plan management, has authority or control over plan assets, gives investment advice for a fee, or has discretionary authority or responsibility in plan administration. It turns on what the person actually does.
A service provider can be a party in interest without being a fiduciary, and the employer can be both. The distinction matters because section 406(a) turns on dealings with parties in interest, while section 406(b) turns on what a fiduciary does.
Related-Party Vendors And Family Ties.
Most vendor relationships are with unrelated companies, and the status itself carries no penalty. The questions get sharper when a vendor is owned by, or employs, someone close to the people who approve the contract, such as an owner’s relative. Paragraphs (E) through (I) are where those ties are caught.
When a tie like that exists, put it in writing before the contract is approved, and ask counsel whether an exemption fits. Our exemptions page explains what the reasonable arrangements exemption asks for.
Keep in mind that the ownership paragraphs reach indirect ownership as well as direct, so a related company two steps removed can still fall on the list.
Questions To Put To A Vendor.
At renewal, ask each service provider a few direct questions and keep the written answers. Does anyone who owns or runs the provider have a family or financial tie to the employer’s owners or to the people who approve the contract? Does the provider pay anything to anyone who recommended it? Does it have any affiliate that would also be paid for work on the plan?
These questions do not decide whether a transaction is permitted. They surface the facts that counsel needs to apply the statutory list.
Related Rules And Tools.
Selecting and Monitoring Health Plan Service Providers
Hiring and watching TPAs, PBMs, brokers and stop-loss carriers as a fiduciary job.
ERISA Fiduciary Duties for Employer Health Plans
A practical guide to the duties of the people who run an employer health plan.
ERISA Part 7 Group Health Plan Requirements Checklist
Six federal health plan rules and how to check each one against your plan.
Laws And Sources
ERISA section 3, 29 U.S.C. 1002: Section 3, paragraphs (14), (16) and (21).
ERISA section 406, 29 U.S.C. 1106: Section 406, which uses the party in interest definition.
Department of Labor, Understanding Your Fiduciary Responsibilities Under a Group Health Plan: Department of Labor guidance naming the employer, fiduciaries and service providers as prohibited parties.
General information, not legal or tax advice.
Quick Answers.
Short replies on this page’s topic, each tied to a fuller guide.
Is a health insurance broker a party in interest?
A person who provides services to the plan falls under paragraph (B). In our reading, a broker that provides services to the plan fits that paragraph, but the facts of the engagement matter and counsel should decide.
Is an employee of the employer a party in interest?
Paragraph (H) names an employee of a person described in paragraph (C), which is an employer whose employees are covered by the plan. In our reading that reaches employees, though the statute treats status and wrongdoing as different things.
Is every party in interest barred from dealing with the plan?
No. Status is not a violation. Section 406 bars certain transactions with a party in interest, and exemptions in section 408 can permit some of them on conditions.
The Rest Of This Series.
What ERISA Section 406 Prohibits
The two lists in the statute: transactions with parties in interest, and fiduciary self-dealing.
Prohibited Transaction Exemptions
The reasonable arrangements exemption, the new group health text and the exemption authority.
Consequences of a Prohibited Transaction
Personal liability, Department of Labor penalties, the Code excise tax question and correction.
Fiduciary Liability Insurance vs. the Fidelity Bond
What each one covers and does not cover, checked against ERISA section 410 and Department of Labor material.
An independent employee benefits consulting firm. We look at the entire benefits program — cost, plan performance, risk and administration.
Switch to CFH. Unhappy with your broker? Your employees won’t notice. You will. →
Cookies on This Site
We use cookies to keep the site working properly and to understand how it is used. You can decline anything that is not essential. See our Privacy Policy for the detail.
- Essential — needed for the site to load and for you to move around it. These cannot be switched off.
- Analytics — tell us which pages get read, so we know what is worth writing more of.
- Advertising — set by third parties such as ad and social platforms to measure and target campaigns.