Prohibited transaction if employees are allowed to "link" wi

[KJohnson]

Employer has been approached about a program where employees can personally invest after tax dollars in mutual funds through payroll deductions. These are the same family of mutual funds offered in the employer's 401(k) Plan. It has been represented that employees who use this payroll deduction program can be "linked" with the assets in the employer's retirement plan for determining "break points" on reductions of sales charges etc.

I know something like this was allowed for IRA's and non-Title I Plans in PTE 97-11, but has anyone seen something like this "linking" to a Title I Plan? Any comments on prohibited transaction issues? [Edited by KJohnson on 09-08-2000 at 02:20 PM]

[KJohnson]

Any thoughts?

[Guest hank]

Before I started doing research,I would go back to the mutual fund family and ask whether it has considered your issue and whether it has a written opinion of counsel regarding the PT question you have raised. Having not done any research on your question, I can only say that it doesn't pass the smell test in the absence of a PTE.

[KJohnson]

Thanks Hank--I tried the rollodex research option---no call back yet. This is a major player and I keep thinking that they must have done the analysis.

[Guest P A Weick]

Have you heard anything further on this issue? It has just come up in my shop.

[Erik Read]

I'm posting to refresh this, and see if we can get some more feedback.

My thoughts - I believe the fund family is the one to ask in this case. Most BP's are done on a single account basis, not on multiple accounts at least not for most groups that I'm aware of.

I don't see any potential problem from the Plan side, it would just be considered another investment in the Letter of Intent.

[KJohnson]

I wonder if the simple answer is that the "plan" is not engaging in any type of transaction. I think this might get you around 406(a)prohibited transactions, but I am not sure about 406(B) problems.

I guess for 406(B) the issue then becomes what is the "fiduciary" doing. If a plan fiduciary does not personally benefit by such an arrangement then I suppose you may not have a 406(B) problem.

Of course, DOL felt that a PTE was needed in the IRA context for this exact type of situation. However, in that case the individual who establishes the IRA is considered a fiduciary with respect to the IRA and is in fact reaping the personal benefit of using the IRA's assets for the "break points" for discounts in personal brokerage or bank services.

[Erik Read]

I Agree!

I think if the fiduciary - named or not, is participating in, or worse yet, initiating the inquiry, we have a problem, and I would file for the PTE.

I'm not sure that I agree the "plan" isn't involved in the transaction. I think under an audit, someone would link the plan into the situation as an intersted party at the least in the LOI for the breakpoints.