"Could Recent DOL Opinion Cause Unnecessary IRAtation?"

On November 29, 2011, the Department of Labor ("DOL") released Advisory Opinion 2011-09A  (the "Advisory Opinion"), that may have important implications for owners of individual retirement accounts ("IRAs") and those financial institutions, including broker-dealers, banks and investment managers, that serve as custodians or trustees to IRAs (and service providers to ERISA plans). 

This Stroock Special Bulletin examines the Advisory Opinion, which holds that Prohibited Transaction Class Exemption ("PTCE") 80-26 does not cover extensions of credit arising out of a typical lien provision in futures agreements in which a lien is granted to a financial institution with respect to all of an IRA owner's accounts at the financial institution, for investment losses by the IRA.  PTCE 80-26 provides for prohibited transaction relief for interest-free loans between plans and their fiduciaries (including an IRA and an IRA owner) which are incidental to the ordinary operation of the plan.   The Advisory Opinion concludes that a lien is not "incidental" if it is in fact required under the agreement.