Prohibited Transaction Question

I have a quick question.  X provided health and insurance services to its client.  From there, X offered that client a discounted rate for providing fiduciary services to that client for its retirement plan.  The retirement plan received a discount of 15% on the stated fee for the retirement plan because of the bundled services.  Prohibited transaction?

Do you have any thoughts or guidance you can provide? I have been unable to locate anything.  

I don't have a proper answer, but I just wanted to say that, whatever your relationship may be to the client, shrugging your shoulders and saying "who knows with ERISA" does not sound like a sufficient basis for trying to resolve an issue.

Sounds as though an ERISA attorney needs to be brought in.

Not my field of expert and I doubt you will find any specific guidance on this specific situations. 

Here is the law:

https://www.law.cornell.edu/uscode/text/29/1106

What i find interesting and ironic is the bundled services are described as selling insurance to the sponsor and fiduciary services. 

i quote from the law:

Transactions between plan and fiduciary A fiduciary with respect to a plan shall not—

(3)

I think It's a problem - although the facts as presented aren't entirely clear.  This is an issue if the plans themseleves are paying the fees.  If the employer pays *all* of the fees, no problem.

Let's start with the premise that one "ERISA" plan cannot subsidize another.  Here it appears the H&W plan is "subsidizing" the retirement plan.  Now I get "relationship pricing" but the cleaner approach is to "discount" each plan and not make one plan carry the weight of the other.

This would be a "clearer case" (In my mind - because I'm exclusively on the retirement plan side) if the retirement plan provider offered a client a discount on other services bought from them.  Clearly, I would think, the retirement plan would be arguably overcharged to "subsidize" the other services.  If bundling certain service results in a cost reduction (i.e., only one client servicing team needed regardless of the number of services included - rather than separate teams for separate services at separate providers), then the discount should be spread appropriately.

It's probably OK, but would depend on a very detailed factual analysis. Suppose X is being paid from plan assets for the insurance services you describe, and X is charging an above-market rate. Then, in order to keep that business, it undercharges for the fiduciary services. Arguably, the employer is using assets of one plan to subsidize the other, for some reason, which could be a PT.

But the above is very unlikely to be the case. First, the employer may be paying for the insurance services out of employer assets. Second, both rates may be reasonable, and the 15% discount is just marketing BS. Again, would take a very detailed knowledge an analysis of facts to know whether there is any PT potential.

17 minutes ago, Luke Bailey said:

It's probably OK, but would depend on a very detailed factual analysis. Suppose X is being paid from plan assets for the insurance services you describe, and X is charging an above-market rate. Then, in order to keep that business, it undercharges for the fiduciary services. Arguably, the employer is using assets of one plan to subsidize the other, for some reason, which could be a PT.

But the above is very unlikely to be the case. First, the employer may be paying for the insurance services out of employer assets. Second, both rates may be reasonable, and the 15% discount is just marketing BS. Again, would take a very detailed knowledge an analysis of facts to know whether there is any PT potential.

Is it possible to distinguish between "insurance services" being paid from the plan and "fiduciary services" paid to the same recipient?  If paid to the same person/organization, aren't both considered together as being subject to fiduciary standards?  Not that I would know, but it would surprise me if they were subject to different standards.

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1 hour ago, My 2 cents said:

Is it possible to distinguish between "insurance services" being paid from the plan and "fiduciary services" paid to the same recipient?  If paid to the same person/organization, aren't both considered together as being subject to fiduciary standards?  Not that I would know, but it would surprise me if they were subject to different standards.

Sure, but fiduciary standards (loyalty, prudence, diligence) are very different from the PT rules. The PT rules impose strict liability for certain transactions, and have pre-set penalties under ERISA (to some extent) and Code. The fiduciary rules are only in ERISA, whether they have been violated is based on facts and circumstances, and liability is based on the damage to the offended plan.

1 hour ago, My 2 cents said:

Is it possible to distinguish between "insurance services" being paid from the plan and "fiduciary services" paid to the same recipient?  If paid to the same person/organization, aren't both considered together as being subject to fiduciary standards?  Not that I would know, but it would surprise me if they were subject to different standards.

Sure, but fiduciary standards (loyalty, prudence, diligence) are very different from the PT rules. The PT rules impose strict liability for certain transactions, and have pre-set penalties under ERISA (to some extent) and Code. The fiduciary rules are only in ERISA, whether they have been violated is based on facts and circumstances, and liability is based on the damage to the offended plan.