disqualified person/party in interest?

[k man]

anyone think this is a problem: partner/doctor requests proposal from tpa/ria firm in which son-in-law is an employee. ultimately dr decides to hire tpa firm to administer and be ria to the plan.

[Guest dbvail]

OK, I've waited with bated breath for someone to opine here as a similar situation has happened with one of our clients. But no one has entered the fray, so here is my response.

Yep, you got a problem.

Not unlike the tree falling in woods, however, it may never be examined for noise. But it still is not right, in my opinion. No one can ever tell me there was not some benefit to the son-in-law that was not influenced by his relationship, therefore the decision was not made in the sole interest of the plan and its' bene's etc.

Perhaps 10 years ago I had a broker be required by the DOL to put a bunch of commission dollars back into a plan that he was a party in interest to.... and your case is not that different.

I hope to hear from others.....this is a tough issue from an ethics standpoint, much less the law.

Good luck.

[KJohnson]

This is from the DOL Regs,

Example (6). F, a fiduciary of plan P with discretionary authority

respecting the management of P, retains S, the son of F, to provide for

a fee various kinds of administrative services necessary for the

operation of the plan. F has engaged in an act described in section

406(b)(1) of the Act because S is a person in whom F has an interest

which may affect the exercise of F's best judgment as a fiduciary. Such

act is not exempt under section 408(b)(2) of the Act irrespective of

whether the provision of the services by S is exempt.

Thus, while you might avoid a 406(a) PT through a 408(b)(2) statuatory exemption --or possibly because the contract would be with the company where the son-in-law was an employee as opposed to directly with the son-in-law (a party in interest)--I don't see you avoiding the 406(b) PT unless there are other fiduciaries and the father-in-law does not vote and has not power to affect the voting on retaining the son-in-law.