12b-1 fees

[Guest anne1]

What are permissible ways for a TPA to pass on 12b-1 fees to a company? Can the TPA place the reimbursed fees into the forfeiture account if the employer uses that account to reduce the match?

[Bill Presson]

I don't believe so. I think in this case, we need to look at something that would be a functional equivalent. Offsetting fees for the employer (or the plan) would, in effect, provide the same benefit.

[Kirk Maldonado]

Bill:

Could you expand your answer to give a bit more detail? It is too cryptic for me to follow.

[GBurns]

anne1

Can you also expand a bit?

Are you saying that the fees are charged initially to the participant accounts but the TPA wants the employer to reimburse the participants? If that is the case, How and Why would the reimbursement not go to the intended participants but instead go to some account held by and for the employer?

To me, this would not be a reimbursement, so I am wondering if I am missing something?

[Guest anne1]

The mutual fund company pays the 12b-1 fees to the TPA. The TPA has made an arrangement with the client to pass those fees on to the client. TPA is unsure as to whether they can just give the fees to the client (don't think so) or if they have to go into the plan. If they have to go into the plan, can they go into the forfeiture account given the fact that the client uses foreitures to reduce contributions?

[GBurns]

The TPA gets a revenue share from the Mutual Fund and wants to share that with the employer but the TPA does not want it to go into the general assets of the employer but into the Plan preferably the "forfeiture account" so that it might possibly be used to reduce future employer contributions to the Plan.

I hope that now I understand.

If I understand you correctly, I suggest that the TPA immediately seek competent legal advice regarding the revenue share, the "kick back" arrangement to the employer, ERISA etc fee and other disclosures made (not made) to the participants, prohibited transactions and breach of fiduciary duties issues.

[E as in ERISA]

See the ABN AMRO opinion letter and the Frost and Aetna letters cited within for discussion of what can be done with 12b-1 fees. ABN AMRO http://www.dol.gov/ebsa/regs/aos/ao2003-09a.html Frost and Aetna are 97-15 and 97-16.

[Guest RJF]

Mr. Burns could you please provide us with IRS citation or cases where they have gone after a TPA or Plan Sponsor for the useage of "Revenue Share" as a prohibited transaction or breach of Fiduciary duties.

Thanks.

[GBurns]

Who said anything about the IRS? Why would the IRS be of such primary concern, anyhow?

I do not know if it is the idea that revenue sharing can be questionable, or that there are disclosure requirements, that is apparently news to you, but it would take too much time to bring you up to speed on what has been published etc in the mass media etc over the last few years so I suggest that you do some simple Google research, plus look at the issues raised by Mr. Spitzer and some state AGs. Also read the DOL link re ABN that a previous poster gave.

Here are somethings to start with:

http://www.fpanet.org/journal/BetweenTheIs...ays/110104A.cfm

http://registeredrep.com/news/ag-dispute-lawsuits/

http://www.edgarsnyder.com/invrecovery/sec...ue-sharing.html

[Guest RJF]

Mr. Burns, don't be so quick to conclude on my knowledge of the useage of revenue share. I'm more familiar with it then you think. IRS? Well you did use the words "prohibited Transaction". Yes, those are some very nice "basic" articles, so what's your conclusion? Based on your previous response, anyone attempting to use "revenue share" dollars is setting themselves up for a law suite. I disagree. As one of your refrenced articles mentions, "revenue share" comes in many different forms. When used properly, they can be a very positive source to the participants and Plan Sponsor and legal.

[Locust]

Getting back to the original question, can't the TPA just reduce its fees by the amount of 12b1 payments it receives?

[GBurns]

RTF

I really cannot believe that you think that the term "Prohibited Transaction" relates to only the IRS?

That "Revenue Sharing" comes in many forms is a given, and since we do not know which form is involved here it is only prudent that a TPA find out if the particular forms that they use have any negative legal implications. Are you saying that no legal advice should be sought to determine exposure?

As Locust implies, we have to address the scenario given by and in the OP. Can a TPA legally do that?

I say seek legal advice now.

[Bird]

Kickback- A return of a percentage of a sum of money already received, typically as a result of pressure, coercion, or a secret agreement.

I don't think this is a kickback. The DOL is very concerned about disclosure, and this TPA is disclosing the 12(b)-1 fees, to the point of wanting to refund them in some fashion. The DOL wants sponsors to be able to make informed decisions; the sponsor must weigh the total costs to itself and to the participants when making a decision on a service provider and/or investment provider.

So...if the TPA quotes a price of "$X" and says it will pass along any revenue sharing, and does it by reducing its fees, I don't have a problem with that. If anyone can provide a cite or example of why that's wrong, please educate me. (I don't like the idea of placing the money in the forfeiture account to reduce the match - it's not a forfeiture. If it's going directly from the TPA to the plan I don't see how it can be anything but a gain. I'm not really comfortable with that anyway.)

Now, if the sponsor winds up making money; that is, the revenue sharing exceeds the fees and is actually enriched by the existence of the plan, then I think that's a problem (and might in fact be accurately termed a kickback).

My $.02.

[GBurns]

Note the term "secret arrangement".

I do not see where we know if there was proper or adequate disclosure. Should disclosure be to the employer only or should disclosure also include other parties such as the plan participants who paid the fees? When should such disclosures be made? Prior to participation or after the fact ?

Since I did not know sufficient details of the proposed transaction I used " " when referring to "kick back" arrangement. Note that 1 of the proposed options is to give the money to the client.

Even if adequately and timely disclosed, Was the decision to use the particular investment vehicles conditioned, influenced or colored by this "revenue sharing" and/or client sharing?