self dealing prohibited transaction

[R. Butler]

Co. A as a regular part of its business serves an investment rep. Can Co. A serve as an investment rep. for its own plan if it will receive compensation? I'm being told that isn't a problem, but it seems to me that irrespective of any PTE that there is a self-dealing issue. Am I missing something?

Thanks in advance for any guidance.

[masteff]

I believe it's covered under a class exemption: http://www.dol.gov/ebsa/Regs/ClassExemptions/

But since I'm not entirely versed on those, you should reach your own conclusion or hopefully someone else will post on this topic.

[Kevin C]

I would be concerned about self-dealing issues, too. You might want to read some DOL Advisory Opinion Letters.

ADV Opinion 2003-09A

http://www.dol.gov/ebsa/regs/aos/ao2003-09a.html

contains the following:

You represent that when a Client Plan engages AATSC to provide bundled services, a Client Plan fiduciary, independent of AATSC or its affiliates, will select the Client Plan’s investment options. We note, however, that if, with respect to a particular Client Plan, AATSC provides ‘investment advice’ within the meaning of regulation 29 CFR 2510.3-21©, AATSC would engage in a violation of section 406(b)(1) of ERISA in causing the Client Plan to invest in a Proprietary Fund (or any mutual fund that pays a fee to AATSC or its affiliates).

ADV Opinion 1997-15A

http://www.dol.gov/ebsa/programs/ori/advisory97/97-15a.htm

contains the following:

When the Trustee Advises

You have indicated that, with respect to some of the Plans, Frost will advise the Plan fiduciary regarding particular mutual funds in which to invest Plan assets.7 It also appears from your submission that, under Frost's arrangements with various mutual fund families, Frost may receive fees from some of the mutual funds as a result of a Plan's investment in the mutual funds recommended by Frost. In the view of the Department, advising that plan assets be invested in mutual funds that pay additional fees to the advising fiduciary generally would violate the prohibitions of ERISA section 406(b)(1).

You represent, however, that before entering into an arrangement with a Plan, or recommending any particular mutual fund investments, Frost will disclose to the Plan fiduciary the extent to which it may receive fees from the mutual fund(s). Furthermore, you represent that the trustee agreement between Frost and the Plan will expressly provide that any fees received by Frost as a result of the Plan's investment in such a mutual fund will be used to pay all or a portion of the compensation that the Plan is obligated to pay to Frost, and that the Plan will be entitled to any such fees that exceed the Plan's liability to Frost.8 To the extent the Plan's legal obligation to Frost is extinguished by the amount of the offset, it is the opinion of the Department that Frost would not be dealing with the assets of the Plan in its own interest or for its own account in violation of section 406(b)(1).

With respect to the prohibition of section 406(b)(3), Frost's contract with a Plan, as described above, will provide that Frost's receipt of fees from one or more mutual funds in connection with the Plan's investment in such funds will be used to reduce the Plan's obligation to Frost, will in no circumstances increase Frost's compensation, and thus will benefit the Plan rather than Frost. Accordingly, it is the opinion of the Department that in these circumstances Frost would not be deemed to receive such payments for its own personal account in violation of section 406(b)(3).