Jump to content

Prohibitted Transaction?


austin3515
 Share

Recommended Posts

DOL's position has always been that 408(b)(2) works as an exemption for 406(a) prohibited transaction but not 406(b). The question then becomes whether the relationship affects the exercise o exercise of such fiduciary's best judgment as a fiduciary

Department of Labor Regulation 29 CFR §2550.408b-2(e).

(e) Transactions with fiduciaries—(1) In general. If the furnishing of office space or a service involves an act described in section 406(b) of the Act (relating to acts involving conflicts of interest by fiduciaries), such an act constitutes a separate transaction which is not exempt under section 408(b)(2) of the Act. The prohibitions of section 406(b) supplement the other prohibitions of section 406(a) of the Act by imposing on parties in interest who are fiduciaries a duty of undivided loyalty to the plans for which they act. These prohibitions are imposed upon fiduciaries to deter them from exercising the authority, control, or responsibility which makes such persons fiduciaries when they have interests which may conflict with the interests of the plans for which they act. In such cases, the fiduciaries have interests in the transactions which may affect the exercise of their best judgment as fiduciaries. Thus, a fiduciary may not use the authority, control, or responsibility which makes such person a fiduciary to cause a plan to pay an additional fee to such fiduciary (or to a person in which such fiduciary has an interest which may affect the exercise of such fiduciary's best judgment as a fiduciary) to provide a service. Nor may a fiduciary use such authority, control, or responsibility to cause a plan to enter into a transaction involving plan assets whereby such fiduciary (or a person in which such fiduciary has an interest which may affect the exercise of such fiduciary's best judgment as a fiduciary) will receive consideration from a third party in connection with such transaction. A person in which a fiduciary has an interest which may affect the exercise of such fiduciary's best judgment as a fiduciary includes, for example, a person who is a party in interest by reason of a relationship to such fiduciary described in section 3(14)(E), (F), (G), (H), or (I

Link to comment
Share on other sites

Wouldn't unreasonable comp be a PT whether or not it was the owners brother or cousin or his golfing buddy?

To be a PT, the transaction has to involve the Plan and a disqualified person/party in interest. If so, then to meet the exemption, the compensation for services must be "reasonable." Unreasonable compensation would also be a breach of the Plan fiduciary's duties under ERISA 404(a).

If the transaction does not involve a DQ/P-i-I, then it is only the Plan fiduciary's duties that are implicated by the unreasonable compensation; not also a PT (unless the Plan fiduciary is deriving some benefit, even indirect and rather intangible in nature, from the excessive compensation payment--then the payment is a PT between the Plan and that Plan fiduciary).

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...