Leaderboard

A disclosure under ERISA § 408(b)(2) is a service provider’s communication to the fiduciary responsible for deciding whether to engage or continue the service provider. The fiduciary considers the information in the fiduciary’s evaluation of whether the service provider’s compensation is reasonable. Even if a service provider might not be a covered service provider because it expects compensation less than $1,000, could it be simpler to do the disclosure anyhow? Don’t you want a “paper trail” showing the fiduciary approved, at least impliedly by nonobjection, your compensation? Further, consider that the rule’s text might not measure the less-than-$1,000 by a year (a word that nowhere appears in the rule). Rather, it is what the service provider expects “pursuant to the contract or arrangement[.]” 29 C.F.R. § 2550.408b-2(c)(1)(iii) https://www.ecfr.gov/current/title-29/part-2550/section-2550.408b-2#p-2550.408b-2(c)(1)(iii) If your service agreement, instead of only a one-year term, continues until either party gives notice to end the agreement and you “reasonably expect” your open agreement might continue for a few years, might the compensation “pursuant to the contract” be $1,000? This is not advice to anyone.

For what it's worth, we have followed this structure many times with ESOP-owned companies--including receiving initial and termination determination letters--without any resistance from the IRS. In those cases, the parent company sponsors the ESOP and is a holding company with no employees. The parent company stock is used as the ESOP's employer securities. The operating business and all employees are housed in a wholly owned subsidiary (or subsidiaries). The operating subsidiary joins the holding company's ESOP as a participating employer. Edit: Just re-read the original post, which mentions not wanting to execute a participation agreement. Sorry.

Lois Baker’s link now points to this morning’s Federal Register publication.

The plan document outlines the definition of compensation. I would hope that definition would be identical between the two plans.