Prhibited Transaction

[Guest TrustMe401k]

Facts:

Company A offers a 401(k) plan

25% owner of Company A is married to partner of money management firm B

A broker in the money management firm (not the spouse of Co A owner) is set to become the broker of record for A's 401k

The broker tells me the money mgt co is planning to charge a fee to Co A for the mutual funds that do not pay commissions. I do not know if the plan or the company is paying the fee but I don't think that matters, or does it?

Anyone think this is not a PT?

Thanks for all answers

[Guest yukon]

Are you asking if it's prohibited to put a wrap fee on a fund that doesn't pay any revenue sharing? I thought that was more common than uncommon...at least for the time being, until the fee scandals are all settled and new legislation comes out.

My question would be: from a fiduciary standpoint, does hiring a money mgmt company - of which your spouse is a partner - to manage your company's plan pass the smell test?

[Guest TrustMe401k]

I guess I'm more concerned about the fiduciary creating a transaction between the plan and a disqualifed person (partner of money mgt co and spouse of fiduciary) The wrap fee issue is not a problem except that the disqualifed person will benefit from the transaction. See 1. below. Possibly even 2. below (in a round about manner) and 4.c.

Tell me where I'm going wrong here...

Prohibited transactions are transactions between the plan and a disqualified person that are prohibited by law. Prohibited transactions generally include the following transactions.

1. A transfer of plan income or assets to, or use of them by or for the benefit of, a disqualified person.2. Any act of a fiduciary by which he or she deals with plan income or assets in his or her own interest.

3. The receipt of consideration by a fiduciary for his or her own account from any party dealing with the plan in a transaction that involves plan income or assets.

4. Any of the following acts between the plan and a disqualified person:

a. Selling, exchanging, or leasing property.

b. Lending money or extending credit.

c. Furnishing goods, services, or facilities