Multiemployer plans that lease office space to or from contributing employers or unions whose members participate in the plan may be engaging in a prohibited transaction. For example, a union might lease classroom space in a building it owns to an apprenticeship program formed by a union and contributing employers. Contributing employers and unions are parties in interest, so a leasing arrangement with a plan must satisfy a statutory or class exemption to avoid violating prohibited transaction rules.

The DOL discussed the problem in an FAQ on its website. The agency suggested that multiemployer plan trustees seeking an exemption for their leasing arrangements should pay attention to the following potential red flags:

• Using out-of-date appraisals that result in parties in interest underpaying rent for plan-owned office space.
• Moving into an office space without a formal, written lease, or trying to formalize the arrangement years after the lease begins.
• For trustees with conflicts of interest, failing to recuse themselves from the decision making process.
• Paying trustees questionable levels of compensation for teaching plan participants in an apprenticeship program.

Have you come across any other problems structuring a lease to comply with a prohibited transaction exemption?

For more information on multiemployer plans, see 359 T.M., Multiemployer Plans — Special Rules.

--Vanessa Walts, Tax Law Editor (Compensation Planning)