Does broker dealer subsidiary holding the assets of a non-profit pare

[Guest Lonnie Tomlin]

501©(6) organization has a for profit subsidiary which

has a broker dealer as a subsidiary. It has been proposed

that the 401(k) plan sponsored by the ©(6) org be

invested through the bd sub. The for profit sub would

receive the commissions on the assets which ultimately

would go to the ©(6) parent. Is this a prohibited

transaction and/or fiduciary issue? As a trustee of the

plan, as well as an employee of the sub, I am concerned

with any potential violations. On the one hand, the

revenue can help keep membership dues and expenses reasonable for the parent org. On the other, we don't

need any violation problems either. Any information,

thought and references to DOL regs would be appreciated.

THANK YOU!!

[Jon Chambers]

Sounds to me like a violation of the "exclusive purpose" rule under ERISA Section 404(a)(1). Although exceptions may apply, I'd suggest that the organization would be better served to select investments for the plan based on their merit, rather than on the availability of commissions to be paid to the employer.