Trustee & owner places assets with its customer

[Beltane]

Business and qualified plans are merging. New Trustee decides to move other plan's assets [a few million $$] to an investment house who happens to be a client of the business the Trustee owns, even though the new funds have much higher expenses - Trustee is trying to recipricate business relationships. Is this a prohibited transaction, or at least a Trustee liability issue, since the decision is being made to benefit her business rather than to act on behalf of the participant's best interests? No due diligence was involved in this decision. Any authority or other sites on similar issues appreciated.

[QDROphile]

IRC section 4975( c)(1)(D), (E) and (F); similar provisions under ERISA section 406(b).

[JanetM]

There goes the prudent expert standard. Hope their bond is up to date if any one sues.

[Peter Gulia]

Assuming all the facts you described (and the absence of any that would support the decision as prudent and diligent), the breaching fiduciary might want to reevaluate his or her business decision after understanding that he or she bears uninsured personal liability. (For many, such an evaluation would next turn on the decision-maker’s perceptions about the risk of detection.)

Concerning a fidelity-bond insurance contract, the insurer would deny coverage, saying that the situation described isn’t the kind of theft loss that the contract covers. (And if any coverage is provided, the insurer may pursues its rights against the wrongdoer.)

Concerning a fiduciary liability insurance contract, even a contract with the fewest possible exclusions typically provides no coverage to an insured who personally benefited from the breach alleged.

Beltane, if you’re a practitioner who would touch the assembly of the plan’s Form 5500 or financial statements at any turn, consider how to protect your engagement. Even if you’ve done a good job of making sure that you’re not responsible, consider asking your lawyer whether you should (or shouldn't) make and keep evidence that you warned the plan administrator that he, she, or it should report prohibited transactions and fiduciary breaches. And remember that each prohibited transaction is continuing (until the plan is restored) and there’s a continuing fiduciary breach until the plan fiduciary takes prudent action to get the plan’s restoration from those involved in the prohibited transactions.