Diane Thompson Posted November 10, 2022 Share Posted November 10, 2022 Father is a trustee on a corporate 401(k) plan. Son (over age 18) is an investment advisor and is interested in being the investment advisor for the plan. As the son would be a party in interest, would this be a prohibited transaction? Is there prohibited transaction exemption for this situation? Thanks for any help you can give. Link to comment Share on other sites More sharing options...
Peter Gulia Posted November 10, 2022 Share Posted November 10, 2022 While I advise no one, a fiduciary might want his, her, or its lawyer’s advice to consider these and related points: If the only tension were that an investment adviser gets compensation for its services, ERISA § 408(b)(2) might exempt that prohibited transaction. But if a service arrangement involves a fiduciary’s self-dealing, the self-dealing act is a separate prohibited transaction. 29 C.F.R. § 2550.408b-2(e)(1); accord 29 C.F.R. § 2550.408b-2(f) example 6 (about father and son). “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.” 29 C.F.R. § 2550.408b-2(e)(1) (emphasis added). A fiduciary’s recusal might not get rid of the conflict unless none of the remaining fiduciaries has any personal interest in pleasing the father or otherwise to select the son. https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-F/part-2550/section-2550.408b-2 If the plan’s fiduciaries (preferably those other than the father) sincerely believe that the son might be the investment adviser that would be selected on the merits, those fiduciaries might engage an independent fiduciary to evaluate investment-adviser candidates and select the plan’s investment adviser. Yet, a fiduciary would do so only if the plan’s expense for the independent fiduciary’s service would be no more than a prudently incurred expense needed to serve the plan’s exclusive purpose. Jakyasar and Luke Bailey 2 Peter Gulia PC Fiduciary Guidance Counsel Philadelphia, Pennsylvania 215-732-1552 Peter@FiduciaryGuidanceCounsel.com Link to comment Share on other sites More sharing options...
Diane Thompson Posted November 11, 2022 Author Share Posted November 11, 2022 Thanks for the info. Gives me a good starting point for my research. Link to comment Share on other sites More sharing options...
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