Under the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA) union officers have a duty and responsibility to manage the funds and property of the union solely for the benefit of the union and its members in accordance with the union’s constitution and bylaws. As one of the duties of their position, many union officials act as a trustee representing the union on a related ERISA benefit plan. Trustees of a benefit plan are fiduciaries and have an obligation of prudence and undivided loyalty to the plan under ERISA. In general, the interests of the local and related benefit plan are compatible so the union trustee does not have a conflict of interest. However, under ERISA, transactions between a party-in-interest (the related local union) and a benefit plan are by statute prohibited unless specifically exempted and the conditions of the exemption are met. Furthermore, a union official acting in his or her capacity as a plan trustee may be considered to have a conflict of interest in such transactions.

It is not uncommon for a local union to lease office space to or from a related benefit plan. In addition to the fact that the transaction is with a party-in-interest, there is the potential issue of self-dealing/conflict of interest with regard to the trustees, which could also cause the transaction to be prohibited. There are various exemptions for transactions involving leases between unions and benefit plans and, depending on which exemption applies, the requirements differ. The DOL has issued an FAQ (available at http://www.dol.gov/ebsa/faqs/faq-leasingarrangements.html) providing guidance on how to structure the lease and what steps to take to prevent these arrangements from being considered prohibited transactions.

In general, a lease arrangement will qualify for an exemption from the prohibited transaction rules under ERISA if the benefit plan pays no more or receives no less than fair value under the lease. Also, the terms of the lease must be at least as favorable to the plan as an arm’s length transaction. The lease agreement must be in writing at the time the lease commences and there must be documentation, such as a current appraisal, that provides evidence that the rent amount and the terms of the lease are reasonable. In addition, a plan trustee who is an officer of the union is prohibited from exercising their authority with respect to a transaction between the union and the plan because, under those circumstances, they are considered to have a divided interest. If a trustee acts on both sides of a transaction, that is deemed to be “self-dealing,” resulting in a prohibited transaction. Trustees with a conflict of interest should recuse themselves from the decision-making process in order to avoid self-dealing issues. The plan must maintain documentation of the decision-making process, such as proper notations in the minutes.

All transactions between a local union and a related ERISA benefit plan, including sharing of expenses and leases, are potentially prohibited. It is prudent to review any transaction that may potentially be prohibited with your attorney prior to entering into the transaction to ensure it is structured and documented properly.

Let us know if you have any questions.