White Paper Discusses Use of Proprietary Funds

Including a retirement plan provider’s affiliated funds as part of a plan’s investment lineup is not a fiduciary conflict of interest or prohibited transaction under ERISA, writes ERISA attorney Fred Reish, in a new white paper. 

In the paper, “The Prudence Standard: Affiliated Products and Services,” Reish, an employee benefits attorney with Drinker Biddle & Reath, says that “simply dismissing from consideration the funds offered by an affiliate of a record keeper is potentially a breach of one’s fiduciary responsibility.”  

“Many plan providers offer recordkeeping, administrative services and communication services as well as investment funds managed through an affiliate,” said Charlie Nelson, president of Great-West Retirement Services, which commissioned the paper. “A provider can be compensated from both recordkeeping fees and asset management fees from affiliated funds. The ability of the provider to offset some of its fees can mean significant cost savings for a plan.”

Reish, along with co-authors Bruce Ashton and Summer Conley, analyzed fiduciary requirements regarding investment selection in ERISA and similar state standards, as well as applicable court decisions and Department of Labor advisory opinions. They noted that affiliated funds may provide other benefits to participants, such as guaranteed minimum withdrawal benefits or added investment education services.

The authors concluded that when fees received by a record keeper and affiliated fund are reasonable and the fiduciaries do not receive a personal benefit from selecting the fund, there is no prohibited transaction. The paper also notes that any conflict with respect to a service provider and affiliated fund can be managed through disclosures to the plan fiduciaries and participants.

The full paper is available here.