Under the Employee Retirement Income Security Act of 1974 (ERISA) Section 406(a)(1)(A), a fiduciary may not allow a plan to engage in a direct or indirect sale, exchange, or lease between a plan and a party in interest such as the sponsor of the plan. ERISA Section 408(a) provides an exemption for the acquisition, sale, or leasing of “qualifying employer real property” under certain conditions. Qualifying employer real property is defined as parcels of employer real property involving a substantial number of parcels that are dispersed geographically.
The Department of Labor (DOL), in an advisory opinion, provided some guidance on the method of applying the standard of geographically dispersed in cases where a transaction involves a single parcel of property. The DOL was asked whether a contribution to a plan of a single parcel of property might be a prohibited transaction because a single parcel could not by itself meet the geographic dispersion requirement. Similarly, the DOL was asked whether the sale by a plan of a single parcel would fit within the geographic dispersion requirement.
The DOL advised that whether a property is qualifying employer real property is determined by considering the plan’s holdings in employer real property immediately after the transaction involving the property. Thus, in terms of a contribution of property, the question of whether a property is dispersed geographically is looked at when the parcel is combined with other parcels held by the plan. Similarly, with respect to a sale of a parcel, the determination is made by looking at the remaining parcels held in the plan after the sale. (DOL Advisory Opinion 2012-05A)