Prohibited transaction if the plan's broker marries the client company

[Guest Phil L]

A person is the agent of record or a broker of record for a particular plan. He provides guidance and assistance to the trustees in selecting the menu of funds that will be available for participants to invest in. He also assists with periodic review of fund performance, etc. He will not likely render any direct investment advice to participants (I don't know if this is a material fact or not).

The president of the company is a fiduciary by virtue of being involved in the review and hiring of the investment and administrative service providers. If the broker of record marries the president's sister, as is planned, would this in any way be a prohibited transaction?

The broker would be a party in interest as defined in ERISA 3(14) although I doubt that he will fit the definition of relative in ERISA 3(15).

Any thoughts on this??????

I know this sounds weird, but hey, I'm not making it up......

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[Guest DanACS]

I read your post with great interest. I was recently contacted by a reporter from the WSJ who asked if I had any comments or examples where plan sponsors have breached their fiduciary responsibility when selecting plan providers. Please contact me if you would like to share a story with the reporter.

[david rigby]

Don't know the answer to your question, but I am amused by its phrasing. You asked if the marriage would be a prohibited transaction. Probably not, but there might be some jokes others would like to contribute.

[This message has been edited by pax (edited 11-04-1999).]

[Guest mt]

I can see it now.... DOL going to court to get a TRO to stop the wedding!

[Guest DavidMCohen]

The wedding is clearly a prohibited transaction. Please provide date and address so that the FBI can send a photographer and a fingerprints expert (just in case the pictures don't do justice to the attendees). By the way, the president should seriously consider finding a new broker once the marriage has been consummated (I leave it to you to figure out exactly when that happens). As a general rule, if the Broker-dealer found out what was going on they might themselves prohibit the relationship (or at least require the filing of an OBA).

[KJohnson]

You could (believe it or not) have a problem under 406(B). Look at the last two examples under 2550.408(B)-2(f). Under these regs...

Your president cannot "engage in an act" with a person in who "he has an interest which may affect the exercise of his best judgment as a fiduciary" (DOL getting a little risque on its regulatory phrasing).

Under the reg, family members (as defined in the statute) are a definite problem. A brother-in-law does not qualify as a faimly member. However the reg lists family members only "by way of example" as a person who might affect one's judgment as a fiduciary.

Under an abundance of caution you might want the president to recuse himself in the future decision making process on whether to retain or fire the broker.

[MWeddell]

The prohibited transaction area with all of its exemptions is pretty complicated. I'd tell the company to name a new broker of record or pay (or have the broker pay) for legal counsel to research whether it's legal.

[This message has been edited by MWeddell (edited 11-05-1999).]