408(b)(2) Reasonable Contract or Arrangement

[J2D2]

I must be missing something in the 408(b)(2) interim final regulations and hope someone can set me straight. Is a bank that is providing custodial services to a covered plan a "covered service provider" where it is paid either by the plan sponsor or from the custody account? The reg seems to provide that a custodian would be a CSP only if it receives "indirect compensation." Compensation paid out of the custodial account seem to be direct compensation [paid by the plan], and compensation paid by the plan sponsor is (oddly enough) neither direct, nor indirect compensation.

What am I missing?

[GMK]

My understanding is that the bank is probably not a CSP unless it provides funds for the plan investments or provides investment advice. Otherwise, payments from the plan and from the sponsor (employer) are direct compensation.

For your reading enjoyment:

http://www.ssdlaw.com/learning-center/new-...etirement-plans

http://www.mcguirewoods.com/news-resources...m.asp?item=6038

[jpod]

If the facts are as simple as you say, and the bank does not receive any indirect compensation (as defined), such as compensation from a 3rd party or a collective trust fund maintained by the bank in which plans invest, then the bank is not a csp. (Hard to believe that the bank is in this business solely to collect a few dollars a year in custodial fees.)