Conflict of Interest

[Guest ScottSRoenigk]

First and foremost I am an employee of Company XYZ. Second, I am the 401(k) Administrator and recordkeeper for Company XYZ. Company XYZ is a small payroll services company. Third, Company XYZ administrates its own 401(k) plan. We are a First Party Administrator for our company's plan and a Third Party Administrator (TPA) for 50+ other companies with 401(k) plans. We are a competitor to Paychex and ADP. I am a particpant in the Company XYZ 401(k) Plan. The Plan Trustee of Company XYZ asked me to recommend plan amendment changes. I feel that I have a conflct of interest. My duties are ministerial. I am not a fiduciary. Company XYZ respects my opinion. I have ten years of experience as a 401(k) Administrator. Would a prudent man give recommendations to the Plan Trustee in this situation? My manager has told me to provide the requested advise to the Trustee. The Trustee is the CFO of Company XYZ. Ironically, my manager instructed me to act towards our own company's plan like I woud towards a client. I would not provide plan design recommendations to a client. To me that is equivalent to legal advice. Just like I would not give investment advise. I am neither an ERISA Attorney, nor a Registered Investment Advisor. I have no problem with interpreting the law. I certainly have and would counsel a client on what the law provides. Why should I act any differently with respect to my own company's plan? Do I have a conflict of interest to provide legal advice and make recommentations to the Plan Trustee? Or, am I really blowing this all out of proportion? Is this my chance to shine and show upper managment my knowledge and skills? Sincerely, Scott in Mason, OH.

[Fredman]

would you be asking the same questions if you were sitting at the bar drinking a beer?

for example:

CFO: i think we should make some changes to the 401k plan.

YOU: yeah i agree, i think we should, blah, blah, blah

CFO: i left my wallet in the car, can you buy the next pitcher?

if all they are asking is for your opinion i see no harm. if they are asking you for formal recommendations that will reflect your next job performance review, then you might have something to consider.

i've seen many plans with "advisory boards", which are usually top paids trying to figure out whats best for them, but sometimes rank and file participants are asked to join in and offer some suggestions for the plan.

maybe your best recommendation could be that you would be willing to round up an "advisory committee" for the plan that will meet on a regular basis and offer suggestions.

[R. Butler]

I don't really make recommendations, I present options. I have no problems with presenting different "options" to my employer and then letting the employer decide. I don't have any problems presenting "options" to clients and then letting the client decide.

[austin3515]

If you really wanted CYA, just qualify the whole thing by saying these are recommendations, but just like you said, I'm not an ERISA attorney, you should consult one before doing any of this. And then keep a copy of the letter...

[E as in ERISA]

What type of changes are involved? Will you actually be expected to give legal interpretations or just give explanations or provide other support? How much time will you be alloted to explain your "recommendations"?

If the CFO is asking you to assist him in checking the boxes in regard to EGTRRA good faith amendments or other standard choices, then you can probably provide a lot of help just by explaining what the most common choices are, running calculations, explaining straightforward plan language, and explaining how the choices affect administration, etc. You can look good just providing lots of knowledge (without giving advice). If they are custom amendments and he wants you to make the decisions, then it may be more risky.

I would also want to know how much time will be alloted. If he is giving you sufficient time for you to explain background information to him until he understands, then you may have less risk (unless he doesn't have any aptitude for benefits). If he is giving you five minutes to tell him what to do but doesn't want to listen to recommendations, then it's risky. He is passing the buck and he is not fulfilling his fiduciary responsibility.

[david rigby]

Seems like the Trustee is just looking for some quick advice, anticipating that he is asking someone who would be expected to have some knowledge.

Not meaning any criticism, he is probably trying to avoid paying for expert advice from counsel or accountant or actuary, and will probably get what he is paying for.

[vebaguru]

Scott-

1. Yes, you are making too big a deal out of this. Your employer may simply wish the perspective of an employee who is well-informed with respect to the plan and the issues that come up in daily operation.

2. You can caveat your advice sufficiently to avoid problems.

3. If you are really a large enough company to compete with Paychex and ADP, you're too large to have an individual trustee. Your advice should include a recommendation of a bank or corporate trustee.

Does your company (or any employee, affiliate or joint venturer) receive any commissions or compensation other than fees paid by your client companies for services rendered? If so, you have worse than a conflict of interest, you have a prohibited transaction. This might also be included in your recommendations if applicable. (Note: I have yet to find a PEO firm that was not engaging in such a prohibited transaction, and none of them have complied with the requirements of the DOL letters that could exempt them from the PT rules.)

[BFree]

Could you give an example to clarify the PEO prohibited transaction you are referring to?

[vebaguru]

Example: PEO maintains multiple-employer 401(k) plan. Plan assets are invested by participants with mutual fund group or group annuity with insurance company. Securities/insurance commissions are paid to: (1) employee of PEO firm; (2) officer of PEO firm; (3) individual related to officer of PEO firm; (4) 10% joint venturer with officer of PEO firm (or firm itself); (5) entity related to PEO firm, etc.

How about a payroll firm? If payroll firm offers multiple-employer retirement plan, the issues are identical and the liklihood of PTs is equal. Only if the payroll or PEO firm sets up separate plans for each client company with the client company selecting their own trustee and investments could the PEO or payroll firm share in commissions.

Obviously you would need to find out who is getting the commissions on your plan or plans to determine whether or not there is a problem. But I have yet to find a PEO firm that is not engaging in such PTs.

[Guest sroenigk]

Thank you all for your feedback. It helped. I am going to give advice to the plan trustee. Plan design is his responsibility. I am simply giving him my opinion regarding which options to choose. My job is to help him make an educated decision.

The specific question he asked me related to the use of forfeitures. He wanted to know if I recommended that we amend the plan document to forfeit account balances immediately upon termination, or upon payment, as of the last day of the plan year. His goal is to maximize the amount of forfeitures available to reduce the employer contribution. He wants to force out everyone under $5,000 to use their unvested money.

We are a competitor to Paychex and ADP. All of the 401(k) plans we administer are self-trusteed plans.

Contrarily, I will not give the same advice to our clients as my own employer asks of me.

Thanks, Scott