PT for accounting firm to invest its plans assets through wholly-owned

[Guest EMC]

Accounting Firm has a wholly owned Financial Services Subsidiary. The FS Subsidiary retains 12b-1 fees received from mutual funds in which the parent Accounting Firm's qualified retirement plan (PSP) invests. Prohibited? If so, exemption suggestions?

[IRC401]

Probably a prohibited transaction, and my advice is for them to get some good advice from someone who deals with this type of issue.

[Bill Ecklund]

Need more facts to give a definitive answer; however check out DOL opinion letter 99-03A. If your facts fit within the parameters of that opinion, you may be ok.

[Jon Chambers]

Whether or not the transaction is prohibited, there may be fiduciary conduct issues. Why doesn't the accounting firm select true no-load funds? At a minimum, this provides an appearance of impropriety, and increases the possibility of litigation. See (for example) http://www.firstunionsuit.com/, where First Union employees are suing their employer for selecting First Union funds, and not considering funds from other management companies.