What Is a Prohibited Transaction
A prohibited transaction is a transaction between a benefit plan and a disqualified person, such as a plan sponsor or fiduciary, that violates ERISA and tax code rules. These transactions are forbidden because they create conflicts of interest that could harm plan participants or beneficiaries.
In the context of government assistance programs like SNAP, Medicaid, TANF, and WIC, prohibited transactions differ but serve the same protective purpose. For example, eligibility caseworkers cannot accept gifts from applicants, and program administrators cannot use benefit funds for personal use. These restrictions exist to ensure fair distribution of public resources and prevent fraud.
Examples in Government Benefits
- A SNAP caseworker accepting payment from an applicant to expedite processing is a prohibited transaction that violates program integrity rules
- A Medicaid administrator purchasing supplies from a company they own without competitive bidding violates fiduciary duties
- A TANF case manager using program funds to pay personal expenses is a direct prohibited transaction with criminal penalties
- A WIC vendor billing the program for services not actually provided constitutes fraud through prohibited dealing
Regulatory Framework
The Department of Labor enforces prohibited transaction rules for ERISA plans through 29 CFR 2550.407. For federal benefit programs, the Office of Inspector General in each agency investigates violations. First-time prohibited transactions can result in civil penalties of $10,000 or more per violation, plus disgorgement of profits and program exclusion lasting 5 to 10 years.
Government benefits programs have specific safeguards. SNAP prohibits employees from having financial interests in participating retailers. Medicaid requires competitive bidding for managed care contracts. TANF and WIC mandate ethics training for all caseworkers handling eligibility decisions. Applicants and recipients have appeal rights if they believe a prohibited transaction affected their eligibility determination.
What You Need to Know as an Applicant
- Never offer money, gifts, or favors to caseworkers or program staff to influence eligibility decisions or expedite processing
- Report suspected prohibited transactions to your program's fraud hotline or inspector general office
- Request documentation if you believe staff used improper methods to determine your eligibility threshold
- Know that program staff are prohibited from discussing your case with unauthorized individuals or sharing your information with unrelated agencies without consent
Common Questions
- Can a family member who works for a benefits agency approve my application? No. ERISA and program regulations require recusal, meaning the staff member must not participate in your case. Another authorized person must make the determination.
- What happens if I accidentally report income wrong on my SNAP application? Honest mistakes are not prohibited transactions. Correcting errors immediately protects you from fraud allegations. Intentional misreporting to exceed income thresholds is fraud and carries penalties including repayment and case closure.
- How do I report a caseworker who asked for a bribe? Contact your state's Office of Inspector General, your program's fraud hotline, or call the Department of Labor at 1-866-4-USDOL. Document the date, time, and what was said.