PROHIBITED?

[Guest CHRISTIE BOSS]

CAN THE PLAN TRUSTEE ALSO BE THE BROKER ON THE PLAN AND RECEIVE COMMISSIONS? HE IS ALSO A FULL-TIME PAY EMPLOYEE OF THE EMPLOYER.

[Guest derek]

Sounds like a prohited transaction to me since it is a transaction between the "Plan" and a "party in interest" (i.e. the plan trustee). There may be some exception, but I'm not aware of it.

[LCARUSI]

I think it's okay - it might not be advisable but it's okay. I base my opinion on a similar situation I am familiar with.

An individual owns an insurance agency. He is the trustee of the Company's 401(k) Plan and the Company receives commissions related to the 401(k) Plan. It's not exactly the same situation as Cristie's but it is close. (Their outside Counsel who presumably blessed this relationship a while ago is a respected ERISA expert.)

[Guest ERead]

I think were looking at two different situations. The first being that the "party in interest" /Broker is going to receive the commissions directly, and benefit from the plan on a personal level. I see that as a definite Prohibited Trans.

The second situation - sounds as though the commissions are going to the insurance "company" and not the broker directly - I don't see a problem with that.

I recently had a case where the broker was related to the owner of a firm, and two different attorney's felt the situation was a no-no - not necessarily from ERISA's point of view - but you should consider the NASD's view on the situation as well.

I say it's prohibited.....

[LCARUSI]

Hi EREAD...

No, in the second situation (the one I posted), the agency which is owned entirely by the Trustee receives the commissions.

Are you and Derek saying you have a problem with that?

[Guest halka]

Could go either way depending on rest of story... This is not unlike the mutual fund fee issues covered under PTE 77-4 and its progeny. Or see Labor Regs §2550.408b-2. I think the issue is whether the use of the trustee/broker was approved by an informed independent plan fiduciary. If so, the arrangement could be O.K. However, if the trustee/broker has the discretion to select investments and brokers and chose him/herself, I think you have a problem.

[Guest ERead]

I'm not saying that I have a problem with it, I do think that it requires a little more looking into. I agree with halka about the choice. I think that as long as the angency can show that the benefits that are coming in are being used to offset plan expenses, as long as the owner is not benefitting personally.

With the broker situation, the broker benefits directly, when the fees are going back to the agency, I think your getting fuzzy, but may still be with in the limits.

I'd suggest another opinion and perhaps a letter of approval from an ERISA attorney, if they don't see any problems, they shouldn't have a problem with putting their name with it...........

As an aside - this is a very interesting and touchy subject that comes up often in my office. It will be interesting to follow the string.

[Guest PWBAer]

This is certainly a prohibited transaction.

As trustee, you are a party-in-interest. As broker, you are providing services and you are a party-in-interest (PII).

The question becomes, is it exempted? A statutory exemption allows reasonable compensation to be paid to a PII. There are additional class exemptions (ie 77-1) which you might find apply. Without a whole host of the facts, it is hard to determine. BEWARE, however, that the exemptions generally apply to ERISA Title I section 406(a) violations only and have limited, if any applicability to 406(B) cites.