Prohibited Transaction

[30Rock]

Broker is on the Board of Directors of a tax exempt entity. He is also the broker for the plan, and of course controls the investments and receives commissions, on assets of 40 million. Is this a prohibited transaction? He is not the named trustee, but he is on the board of the employer, and in essence the plan sponsor is normally a fiduciary. This is an ERISA plan, and it is not self directed, employer directs investments, and broker has plan on local brokerage firm platform.

Any thoughts??

[Guest Sieve]

Whether a Board member of the employer is a fiduciary is covered in DOL Interpretative Bulletin 75-8 (i.e., DOL Reg. Section 2909.75-8), Q&A-4. The answer, generally, is that a Board member is a fiduciary with respect to certain responsibilities (such as the selection of a Trustee or other plan fiduciaries) but only to the extent of that responsibility.

There is a PT in ERISA Section 406(b)(2) (but not in the Code) that may be implicated in your situation to the extent the Board is responsible for selecting the broker ("A fiduciary . . . shall not . . . act . . . on behalf of a party . . . whose interests are adverse to the interests of the Plan . . ."). Or there's this: "A fuiduciary . . . shall not deal with the assets of the plan in his own interest . . ." (ERISA Section 406(b)(1) & IRC Section 4975©(1)(E)). So, your concern is not misplaced, in my mind.

I don't think there are any PT exemptions relating to this or comparable fact patterns, but, frankly, I'm not sure.

[Guest Crossbridge-BWF]

Whether a Board member of the employer is a fiduciary is covered in DOL Interpretative Bulletin 75-8 (i.e., DOL Reg. Section 2909.75-8), Q&A-4. The answer, generally, is that a Board member is a fiduciary with respect to certain responsibilities (such as the selection of a Trustee or other plan fiduciaries) but only to the extent of that responsibility.

There is a PT in ERISA Section 406(b)(2) (but not in the Code) that may be implicated in your situation to the extent the Board is responsible for selecting the broker ("A fiduciary . . . shall not . . . act . . . on behalf of a party . . . whose interests are adverse to the interests of the Plan . . ."). Or there's this: "A fuiduciary . . . shall not deal with the assets of the plan in his own interest . . ." (ERISA Section 406(b)(1) & IRC Section 4975©(1)(E)). So, your concern is not misplaced, in my mind.

I don't think there are any PT exemptions relating to this or comparable fact patterns, but, frankly, I'm not sure.

I am familiar with a similar situation. Are the implications different if the board member is not a "broker" but is the sole "money manager" (RIA) for a pooled asset, non-participant elected money purchase pension plan. To clarify further, the assets are managed by the board member, however, the asset allocation is instructed by the employer and investment directives are given by the employer. The "money manager" charges aset based fees and trading commissions.

Thank you in advance for any knowledge.