Internal Advisor Fees Paid From Plan

[401kAllTheWay]

Reviewing the current fee setup during our audit and see there are fees being paid for out of the Plan for investment advisory (participants). The issue is this is our own internal wealth management group. They are under a LLC while the company is an LLP.

Another challenge is the wealth management team was very outspoken to not use specific record keeper services (managed accounts) as it could conflict/overlap with our internal wealth company. Those that would use our internal advisors are mostly HCE where I do believe the managed services by the recordkeeper benefits all. The NHCE employees do have the option to use our internal advisors. 

This seems to be walking a very gray line and wanted outside thoughts. 

I don’t understand how the internal wealth management group is helping making fiduciary decisions, specific around investments but then can get paid for advisor fees from the Plan for those clients of their. 
 

 

[Gina Alsdorf]

I don't know how the companies are set up or related and it matters for your analysis. That being said it sounds like there could possibly be a non-exempt prohibited transaction in there?  A lot depends on your specific facts and circumstances. Here are some thoughts:

Generally, paying fees to any service provider is a prohibited transaction under ERISA section 404(a)(1). However, there is an exemption 408(b)(2) for reasonable and necessary services for establishment and operation of a plan, so long as no more than reasonable compensation is paid.  Reasonable compensation has a specific definition and requires disclosures. 

If there is certain types of common ownership between the LLC and LLP, there may be an issue with even just hiring the affiliated provider and paying a fee.

Regardless of that no fiduciary should be able to exercise discretionary authority to hire itself or increase its own compensation unilaterally. ERISA section 406(b) prevents self-dealing by a fiduciary. 

You should see an ERISA attorney so your actual facts and circumstances can be considered in light of the rules. 

 

[Roycal]

You need to go to an experienced ERISA attorney for advice.