Banks offering preferred commercial lending rates to plan sponsors

[MarZDoates]

Suppose a bank or financial institution offers to provide preferred commercial lending rates to a retirement plan sponsor if that sponsor moves their 401(k) plan assets to the financial institution. 

Can anyone point me to any white papers or articles discussing this topic? 

Thanks!

[shERPA]

How about code section 4975(c)(1)(E) and (F)?

[ESOP Guy]

Even if it isn't a PT like shERPA says it is a clear fiduciary breach.  The last time I heard anyone try this was in the '90s. 

Here is a link to an IRS website on fiduciary duties.

https://www.irs.gov/retirement-plans/retirement-plan-fiduciary-responsibilities

The first thing listed is:

acting solely in the interest of the participants and their beneficiaries;

They aren't acting "solely in the interest of the participants and their beneficiaries" if they are doing this to get the company a lower loan rate. 

I am actually shocked there is a bank still trying this. 

Any sponsor who does this and gets caught is in a world of hurt.  

[jpod]

This goes on all the time but smart people don't put anything in writing.  I am not saying it is not a pt and/or fiduciary breach risk, I'm just stating a fact.   

[MarZDoates]

Thank you very much!

 

[CuseFan]

8 hours ago, jpod said:

This goes on all the time but smart people don't put anything in writing.  I am not saying it is not a pt and/or fiduciary breach risk, I'm just stating a fact. 

Yeah, kind of like college athletics recruiting - or apparently now just college entrances.

[jpod]

About 30 years ago when I was a youngish attorney I was invited into one of our conference rooms to discuss some issues concerning the implementation of benefits for a company - our client -  that had recently bought the assets of an ongoing business and inherited its employees.  A couple of the owners were there along with the lead partner from my firm on the deal.  This exact issue scenario came up.  I wasn't asked for my opinion but I volunteered something like "this would raise ERISA prohibited transaction issues."  They kicked me out of the conference room.

[QDROphile]

We could start a new thread to recount stories about what happened when the specter of prohibited transactions was made apparent to unsuspecting partygoers.  I have been dismissed from a transaction or two.  I have also had others angrily walk out of the room.  I have also testified before a federal grand jury.  It turns out that what we ERISA  practitioners know as certain prohibited transactions are also prohibited by the U.S. criminal code.

[MPLSLAW]

Accounting firm is searching for a custodian for its 401(k) plan.  It interviews several providers.  One of the two finalists is a client of the accounting firm (tax - non-attest).  Any problem if the firm selects the client????   These relationship questions can get sticky sometimes. 

[jpod]

Possibly.  Those who are very conservative from an ERISA compliance perspective would not hire an existing client or even a prospective client to be a plan service-provider where there is a record that they have been trying to land that prospective client.  Most aren't that conservative, even those who understand the ERISA rules of fiduciary responsibility and the PT rules.  On the other hand, the risk is somewhat mitigated if not eliminated as a practical matter if the fees of the service-provider (in this case, the Custodian) are paid by the employer and not by the plan.  

[MoJo]

22 hours ago, jpod said:

About 30 years ago when I was a youngish attorney I was invited into one of our conference rooms to discuss some issues concerning the implementation of benefits for a company - our client -  that had recently bought the assets of an ongoing business and inherited its employees.  A couple of the owners were there along with the lead partner from my firm on the deal.  This exact issue scenario came up.  I wasn't asked for my opinion but I volunteered something like "this would raise ERISA prohibited transaction issues."  They kicked me out of the conference room.

I used to work for a bank - and while the lenders would NEVER discount loan costs for retirement plan clients, they routinely demanded discounted retirement plan fees for lending clients (on the theory that multiple "hooks" (i.e. services) with a client would keep them loyal to the bank)....  Same difference - and I was kicked out of many conference rooms for refusing to comply with lender requests to do this.

[Bob the Swimmer]

I worked as a senior executive for several bank trust Departments early in my career and there was no discounting of fees during my tenure--but often the business would be moved to us because of the lending relationship---to the comment about the CPA firm handling RFPs, my practice and  that of Committees that I've served on has been to make sure that the firm that is selected can be and has been documented clearly as the best choice (from a number of different perspectives--fees, service history, references, personnel, reputation, etc.) from what we knew at that point in time