The Principal Life Insurance Co. wanted to know: Should revenue-sharing payments it receives for services rendered to an ERISA plan be considered part of the plan's assets?
The Department of Labor provided an answer in Advisory Opinion 2013 03A.
Principal provides record-keeping and other administrative services to various ERISA qualified plans. It also provides investment options that include its own insurance company accounts and unaffiliated mutual funds. It receives revenue-sharing payments from these funds and retains them in Principal's general asset accounts; it doesn't establish a special custodial account for receiving these payments. It then draws on these funds to pay for services to the plan.
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The DOL opinion said that if Principal's contract with the plan stipulates this arrangement, the revenue-sharing payments would be considered a plan asset, but not until the plan actually receives it.
The opinion also said that ERISA's general standards of fiduciary conduct also apply: Responsible plan fiduciaries must act prudently and solely in the interest of the plan participants and beneficiaries and ensure that the fees the plan pays directly or indirectly to Principal are reasonable. It's up to Principal to provide sufficient information to the plan fiduciaries for them to make that determination.
Generally, revenue-sharing payments are made by mutual fund companies to plan service providers such as record-keepers, broker/dealers and investment advisors. These payments share the revenue the mutual fund company receives from plan assets invested in the mutual fund and can reduce the amount that the plan or employer pays the service providers.
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