Tying bank services to receipt of qualified plan

[Guest philc]

Don't have any specifics but was asked if there was anything illegal with the following -

a Bank offered to double an employer's line of credit if the employer placed their qualified plan with them. Are there ERISA issues? Possible prohibited transaction? Possible violation of banking rules?

Payroll companies trade off payroll services if they have the plan and insurance companies may reduce fees for other coverages if they get the qualified plan, and vice versa.

Any opinions or articles you can post?

[Mike Preston]

I'll post an opinion: it is, at the least, a prohibited transaction.

[FundeK]

IF the employer does an extensive plan/price comparison and finds that this bank truly does offer the best deal for the plan, how could it be a prohibited transaction? They would be choosing the provider because it is in the best interest of the plan/participants. Of course, they would need detailed documentation showing what they were looking for and what they found at each provider they looked at, as well as why they chose this provider. An additional hypothetical question.....Let's say you have a corporate banking relationship with Bank ABC, you transfer your PS plan to Bank ABC and get a discount due to having multiple relationships with the bank. That isn't a prohibited transaction is it?

[Mike Preston]

It could be a PT because it IS a PT. It doesn't matter that the deal for the plan is the same or better than what the plan could have gotten otherwise. That seems to be completely irrelevant, IMO, Congress set those rules up with the intention that they would, in some cases, preclude a plan from taking advantage of a "good thing". This was done so as to ensure that the a plan was protected from "bad things".

[Appleby]

Is this a Keogh philc?? ...

In PTE 93-1 and PTE 93-2- , the DOL granted exceptions to owner-only plans… to establish their plans with financial institutions in return for free or discounted banking related services--- such an arrangement would not be considered a prohibited transaction...

[Guest philc]

No it isn't a Keogh Plan.

So in my original post for example concerning payroll and insurance companies, they may be PTs?

[Kirk Maldonado]

I agree with Mike Preston. In fact, I think that there is some ancient DOL guidance on this (or a related) point.

[ljr]

We are a bank with a trust department. The original post describes a transaction that is considered "tying" services which is not permissible for the bank. In reality, it probably happens informally more often than we'd think. Unfortunately, I cannot provide a site. Unless things have changed in the past 10 years, banking rules prohibit a loan transaction being conditioned on the company taking the loan bring their qualified plan to the bank.

I would also tend to agree it's PT from the plan's perspective as stated by other replies.

It would be interesting to know if the bank put their proposal in writing. I hope for their sake that they didn't and that the whole thing was a miscommunication.

[KJohnson]

I think the fact that the "toaster" exemption in PTE 93-1

http://www.dol.gov/ebsa/programs/oed/93-1.htm

and the bank services at reduced cost exemption in 93-2

http://www.dol.gov/ebsa/programs/oed/93-2.htm

were specfically limited to "non-ERISA" vehicles such as an IRA or a Keogh gives you a pretty good idea what DOL's ideas on this were. There would be no need for an exemption if it was not a PT to begin with.

[Atila]

Does anyone know if there has been further guidance on the "toaster" exemptions as they apply (or do not apply) to qualified plans, including 401(k) plans. I am particularly interested in benefits provided to plan participants.

[KJohnson]

I recall at some point, a number of years ago a few brokerage houses were allowing "house holding" where you aggregate a participant's ERISA accounts, IRAs, and personal holding with the brokerage house for purposes of determining breakpoints on the cost for services, higher interest rates etc. I am not sure whether that is still going on. For those doing it publicly, I would assume that they got an opinion from counsel but I am not sure how they got around PT issues.

[jpod]

If only the plans and IRAs benefit from the aggregation, it shouldn't be a pt. If plans, IRAs AND personal accounts benefit, it may be a pt.