Retirement plan fiduciaries and service providers to retirement plans are coming up to the July 1, 2012, deadline for service providers to deliver disclosures of compensation to be received from their service arrangements with plans. We have prepared this review of the rules as a reference for those who are giving or getting these disclosures. Many of the questions that arise in connection with these requirements are fact-specific, so the following should not be regarded as advice with respect to any particular person or situation.
Putting the Disclosure Requirement in Context
The Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (the Code) each contain rules about “prohibited transactions” involving employee benefit plans. (These rules are similar, but not identical, in the two statutes.) Under ERISA, a fiduciary is prohibited from engaging in a prohibited transaction, to the point of having to unwind it, and the Code imposes excise taxes on the transaction. As a result, avoiding prohibited transactions is an important part of plan administration and providing services to plans. ERISA and the Code contain a number of statutory exemptions for categories of transactions that would otherwise be prohibited transactions.
The definitions of “prohibited transactions” in ERISA and the Code are broad. Under them, a fiduciary may not, among other things, cause a plan to receive services from or transfer plan assets to a “party in interest.” “Parties in interest” include a number of categories of persons and entities with ownership, financial or functional relationships to a plan or its sponsoring employer. (The Code uses the term “disqualified person” rather than “party in interest”; the definitions are similar, but not identical. We will use the ERISA term in this review.) One category of parties in interest is service providers to a plan.
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