Schedule C - a mutual fund's service providers

[Peter Gulia]

For the mavens who are digging into new Schedule C questions:

Assuming no other relationship to the retirement plan, which of the service providers to a mutual fund (manager, underwriter, transfer agent) becomes a service provider to be reported (assuming enough $) on Schedule C because of the plan's investment in the fund's shares?

[Bird]

According the Sungard's Pension Technical Update, none of those employees needs to be reported, as long as the primary relationship to the fund company is reported, and the employee gets no direct or indirect compensation from the plan.

[Peter Gulia]

Bird, thank you for helping me think this through.

Does the "employee" exception apply if the relationship between the fund and its service provider is not an employer-employee relationship?

For example, if the fund is a Fidelity mutual fund and the manager is FMR Corporation, there is a contract between the fund (or a registered investment company) and FMR Corporation (a registered investment adviser), but FMR is not the fund's employee. And the fund doesn't receive the manager's fee, just the opposite: the fund pays a fee to get the manager's services.

Don't the Labor department's FAQs focusing on "investment funds" (EBSA's made-up description) mean that a fund's manager is treated for Schedule C purposes as though it were a service provider to each retirement plan that invests in the fund's shares?

[Bird]

I was afraid you were going to make that distinction (not an "employee"). Honestly, I don't know, and I'm not sure I care; by the time I get to all two of my large plans I expect this to be ironed out. But, even in the alternate universe in which the DOL resides, I cannot imagine that they want that particular information or expect anyone to provide it.

[Peter Gulia]

Bird, thanks again.

Any other mavens to weigh in?

Are there some recordkeepers or TPAs, with larger (100 participants) plans, who are gearing up for how to assemble Schedule C information for a draft Form 5500 sent for a plan administrator's review?

How do you collect information that isn't in the recordkeeping system?

[Guest Pension250]

I am struggling with this now...have a plan 5500 for a short plan year due on Monday. No service providers are answering me and gathering the data has been a days-long struggle.

Basically all I have gotten out of this experience thus far is that we are going to have to charge clients seperately for the schedule C, and it wont be cheap.

[Bird]

I was afraid you were going to make that distinction (not an "employee"). Honestly, I don't know, and I'm not sure I care; by the time I get to all two of my large plans I expect this to be ironed out.

Ha! I haven't seen much of anything on this, and am spinning about aimlessly trying to figure out how to handle a plan on the Hartford mutual fund platform. The only hard numbers we got are for broker's comp; the rest of the info is just percentages for the overall fund fees, management fees and 12b-1 fees. I don't know if that disclosure is sufficient to qualify as eligible indirect comp; if not, then I don't know how to calculate it; the best we can do is a very rough estimate. And then there are the other contractors such as Morningstar who are getting "something" but no one has a clue how much is attributable to each plan.

Any thoughts?

[Guest allen293]

First off, yea, I agree that such comp would technically be reportable, so long as the provider received compensation in connection with services rendered to the plan. Also, I agree that the exception for employees of a service provider would not apply because the "sub" is not an employee of the mutual fund.

I don't know where to go from there. This is really why the eligible indirect comp simplified reporting option exists. If the mutual fund is not taking advantage of this, then everyone is sort of screwed. My thought was that most of the major fund managers would have something in place by now to take advantage of the EIC option. My office is awaiting responses from service providers. If mutual funds and the like respond with something other than the EIC option (or perhaps the bundled service option, if applicable), then things could get real ugly (uglier than usual).

[RCK]

Yes, its late, but we're still bogged down a bit.

My interpretation of the alterntive reporting option for Eligible Indirect Compensation is that it is only available to providers who receive only EIC--not to a provider who received direct compensation, and eligible indirect compensation, and certainly not to a provider who received any other indirect compensation.

And my problem is with a provider whose right hand does not know what the left is doing. So the right hand is getting only direct compensation, and the left hand is getting only eligible indirect. As long as both hands are reporting under the same EIN, can we use the alternative reporting option for the eligible indirect?