What is a Party in Interest?

In the broadest application, a party in interest is an individual or other entity that stands to benefit from the outcome of some type of legal action, such as a bankruptcy or lawsuit. The term is also used to identify the individual associated with a retirement plan that is prohibited by governmental regulations from entering into specific types of transactions that are connected with that plan. In both applications, the idea is to protect the interests of all parties involved, without affording any one party or parties with the ability to take advantage of others involved in the lawsuit or plan.

In terms of legal situations, a party in interest would be both the defendant and the plaintiff in the case, along with any service providers who may have a business relationship with the two parties. Depending on the exact situation, the party in interest is granted certain rights or protections under the law, as well as being somewhat restricted in conducting transactions with other parties involved in the action. For example, in a bankruptcy hearing, a creditor would be granted party in interest status and have the ability to present data that would be taken into consideration prior to the court, effectively protecting the interests of that creditor.

As it relates to the ongoing operation of an employee retirement plan, the employer, including company directors and officers, are all considered parties in interest. In addition, the plan trustee, employees enrolled in the plan, and any employee organizations where all or a part of the membership are enrolled in the plan, would also be considered a party in interest. Attorneys who have an ongoing business relationship with the employer are also sometimes considered parties of interest.

In the United States, the Employee retirement Income Security Act, known as ERISA, provides the basis for defining and identifying a party of interest in relation to various retirement plans. Any individual or entity that is identified as a party in interest under the terms of ERISA has certain rights associated with the plan, but is also prohibited from taking specific actions in regard to the plan. Along with the employer and employees, a party of interest may be any investor who owns more than fifty percent of the employer organization. Depending on the structure of the plan and the relationship of the individual to an employee organization, the spouse, children, or the spouse of a child of the employee may also be considered a party in interest.