non-trustee partner recieving commissions as rep on 401(k) plan

[Guest Darren Graff]

the non-trustee partner would like to become the rep (and recieve commissions) on the companies 401(k) plan). The company provides brokerage/advisory services to their clients and this is the companies own plan. Are there any prohibitions? Is this a conflict of interest? Thank you.

[Dawn Hafner]

Section 406(B)(3) prohibits a fiduciary of the plan from receiving any consideration for his or her personal account. A fiduciary includes named fiduciaries such as trustees, but also any person who exercises any discretionary authority or contol respecting management or dispotion of assets, renders investment advice for a fee (direct or indirect) or has any discretionary authority or responsibility in administration of the plan. Sounds to me like he would be a fiduciary either as a partner or rendering investment advice.

[Guest Do]

The PT exemption statute allows a fiduciary to receive some types of consideration to their personal accounts such as a fiduciary who also participates in the plan. A fiduciary may also receive reasonable compensation for services rendered as a fiduciary. The key to the exemption is that such a fiduciary must not already receive full-time pay from sponsoring employer. Courts have held that full-time pay is a factual issue that depends on amount. In one case where the fiduciary worked for the sponsor part-time and had another job that was full-time, the court held the fiduciary had a full-time job with the sponsor because the amount he was paid for his part-time job. His part-time job paid something like $30,000 and his full time job paid in the six figures. So, the morale of the story is that it doesn’t take much to be considered receiving full-time pay. If this partner wants to receive the commish, he/she had better receive a very small draw from the partnership (like none).

[Dave Baker]

The trouble is see is that, while the partner might not be a "party in interest" or "disqualified person" for purposes of the prohibited transaction rules, the trustee certainly is a fiduciary and therefore is responsible for refraining from using plan assets for his own benefit. Arguably the decision of the trustee to use his own firm for the brokerage and advisory services is such a use of plan assets, even though it's the trustee's partner who's actually getting the commission. It would be better if the trustee were wholly unrelated to the plan sponsor (rare, but possible).

[Guest Barnard Walsh]

POSSIBLE RELATED SITUATION: A qualified plan had its own "board of trustees." In a trust department, I was the Trust Officer who administered that plan. The "board" wanted to replace the "agent of record" (who received 12(B)1 fees and commissions). Wanting to be appointed,I asked the bank. The trust department's attorney pointed out a conflict of interest may exist. Later, I was appointed "agent" after notfying the trust department I was resigning from the bank.

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Barney Walsh