SEC settlement with a mutual fund company

[John Feldt ERPA CPC QPA]

A 401(k)/PS plan just received an $8,000 check from a mutual fund company for their 401k plan as part of the SEC settlement with the mutual fund company to reimburse mutual fund holders for excessive trading costs, etc. for the period 2000 to 2003.

Since the date that is being used to determine the $8,000 figure is what the mutual fund company shows as recorded on September 30, 2003, who gets the money and how is it to be allocated? Do we need to go back to September 30, 2003? Could it just go into the current plan to allocate to current participants or to offset current plan expenses?

Many of the participants back in 2003 have retired or terminated. Do you think the IRS/DOL would accept a reasonable cost/benefit analysis to determine if it's really worthwhile to try to allocate an $8,000 check on balances that are almost 6 years old and to participants who are no longer in the plan?

[Belgarath]

Don't know how much this will help, but at least it is official DOL guidance...

http://www.dol.gov/ebsa/regs/fab_2006-1.html

[Guest Robin.Wolf]

Does your Plan document offer any guidance? Ours state that such funds are first allocable to pay eligible plan expenses and any residual at year-end is allocated among participants as forfeitures.

[John Feldt ERPA CPC QPA]

I do not see where our document spells anything out that matches this situation, but FAB 2006-1 helps a lot. Thanks!

[Peter Gulia]

Although the risk of litigation or even a claim might be remote, keep in mind that an EBSA Field Assistance Bulletin is not a rule (in the sense that the Administrative Procedure Act uses that word). A court need not defer (and need not even consider) a FAB in the court's interpretation of a statute. If a court considers a FAB, the court might not be persuaded by EBSA's reasoning. Some Federal judges are unimpressed by EBSA's use of non-rule guidance. Their view is not necessarily a criticism of people serving in EBSA, but rather is an observation about how the United States ought to decide law.

That said, a FAB sometimes includes a generally useful overview, especially if a decision-maker has already decided that the stakes of a plan-administration question are so small that it would be imprudent for the plan to pay for any legal advice.