Advisory opinion on "plan asset" issue lays out factors for fiduciary consideration.
On July 3, the U.S. Department of Labor (DOL) issued Advisory Opinion 2013-03A, which discusses whether a bookkeeping account for revenue sharing payments constitutes "plan assets" under the Employee Retirement Income Security Act (ERISA). In the opinion, the DOL also takes the opportunity to outline the responsibilities of plan fiduciaries in deciding whether to approve revenue sharing arrangements on behalf of their plans. Sponsors and fiduciaries of plans that participate in revenue sharing arrangements should review the arrangements to confirm that the factors described by the DOL have been taken into account.
"Revenue sharing" is a term generally used to describe payments that plan investment options (commonly mutual funds but also other types of funds) may make to plan trustees and recordkeepers. These payments typically include, for example, "12b-1" and "shareholder servicing" fees paid by mutual funds. Revenue sharing enables the plan trustees and recordkeepers that receive these payments to charge lower (or no) "direct" fees to the plans for their services.
The DOL's advisory opinion describes an insurer that received revenue sharing payments in connection with investments by plans to which the insurer provided recordkeeping and administrative services. While the insurer retained these payments for its own account, it agreed with some client plans to record bookkeeping credits based on these amounts, which could then be applied to pay certain plan expenses or be deposited directly into participant accounts. These types of accounts are sometimes referred to as "ERISA accounts" or "ERISA budgets."
Overview of the Advisory Opinion
The narrow issue in the advisory opinion is whether the insurer's bookkeeping accounts are to be treated as "plan assets" for ERISA purposes prior to their actual use for the benefit of the plan, which would raise various issues. The DOL states that, while this is an inherently factual inquiry, nothing described by the insurer would lead it to conclude that the amounts in the insurer's bookkeeping account would be assets of a client plan before the plan actually receives them. This should help to resolve an issue that, while technical, has been raised in litigation.
The DOL goes on to emphasize that, regardless of the plan asset issue, an arrangement involving the payment of revenue sharing to a plan service...