Broker's Relationship

[Guest MS TPA]

Is it okay if the Employer's/Plan Sponsor's brother is the Broker of Record? Brother is not employed at the company.

[rcline46]

Review the definitions of a 'disqualified person'. If the brother meets any of the definitions, you have your answer.

[Guest Sieve]

It might be a prohibited transaction even if the brother is not a disqualified person.

Based on your description (the employer's brother), it seems that the employer is wholly-owned by one person. That makes the owner a disqualified person (as is the employer). And, whether or not the brother is a disqualified person, it is a prohibited transaction to use plan assets for the owner's benefit (such as by placing them with a brother, which likely would be considered for the owner's benefit--giving business to the owner's brother).

I'd advise against the arrangement.

[12AX7]

Would it be considered a PT if the broker (Plan Sponsor) was an employee, but was not benefiting from the plan?

[Guest Sieve]

What do you mean that the broker is the plan sponsor? And, I assume in your hypo that the broker no longer is a brother of the majority owner.

In any event, an employee of the plan sponsor is a party in interest under ERISA (ERISA Section 3(14)(H)), whether or not a participant in the plan. The broker also could be a party in interest (or disqualified person) as a fiduciary--especially under the new fiduciary definition of DOL Prop. Reg. Section 2510.3-21©.

And, a fiduciary receiving full-time pay as an employee of the employer can only receive reimbursement of direct expenses (DOL Reg. Section 2550.408c-2(b)(2)), which does not include profit (DOL Reg. Section 2550.408c-2(b)(3)). A non-fiduciary simply cannot receive excessive compensation (DOL Reg. Section 2550.408c-2(b)(5)) based on facts & circusmtances (DOL Reg. Section 2550.408c-2(b)(1)).

[12AX7]

Larry, you answered my question. I wasn't sure if there was an exemption if for example a broker sponsored a plan that he was also eligible to participate in.