12(b)-1 Fees - Keep them or give them to plan participants?

[Guest TRUST53]

Under what circumstances can a plan trustee, such as a bank, keep 12b(1) fees paid by the mutual funds in which plan participants invest? I have heard only in "Directed Trustee" arrangements but I am not certain that there are clear guidelines on how to "act" as a directed trustee. Any thoughts?

[Guest Jeeves]

I was on a conference call the summer before last. There is guidance in the form of a DOL AD OP [i think]. My take is that you can receive 12(B)-1 or sub-TA fees on plans as long as it does not result in an increase in your overall fees. Net it out, so to speak.

[Jon Chambers]

The letter the last poster referred to is the "Frost" opinion, DOL Advisory 97-15A (there was a similar letter 97-15B for Aetna, that applies to insurance companies that are not trustees). Bottom line--you can keep 12b-1 if you are licensed to accept them and your aggregate compensation is reasonable in light of services rendered, and you are not "self-dealing" by directing investments to commissionable funds, and you disclose amount of 12-b1 compensation to sponsor.

As an aside, returning 12b-1 fees to participants would almost certainly violate NASD rules against rebating commissions.