Under ERISA, a fiduciary of a plan may not receive payments from any party dealing with that plan's assets in connection with a transaction involving the plan's assets. This is often referred to as ERISA's anti-kickback provision.
A number of financial institutions have established "one-stop shopping arrangements" for plan sponsors. Under this type of arrangement, financial institutions provide an array of (1) services (including trusteeship, custody and recordkeeping) and (2) investment options, including mutual funds.
Beyond the receipt of fees from the plan sponsor, the financial institution sponsoring the arrangement will receive fees from the participating mutual funds, typically based on the amount of the plan's assets invested with that fund. These fees are received from the mutual funds in connection with shareholder, subtransfer agency and marketing services provided by the financial institution to the mutual fund. If the financial institution is a fiduciary of the client's plan, then the receipt of the fee from the mutual fund could be deemed a prohibited kickback.
In the first DOL opinion, the receipt of these fees by a bank trustee did not violate the anti-kickback prohibition where there was full disclosure of the terms of the bank's arrangements with the mutual funds and the fees received were used either to offset, dollar for dollar, the fees otherwise payable by the plan to the bank or were credited back to the plan by the bank. The DOL did not distinguish between situations in which the bank acted as a "full" trustee or as a "directed" trustee. A key point in the DOL's opinion was that the bank's receipt of fees from the mutual funds would not be a prohibited kickback, where the bank was truly directed by the plan sponsor. However, the DOL refused to rule that the bank was truly directed by the plan sponsor because the bank had the authority to add and eliminate mutual funds from the arrangement.
In the second opinion, a life insurance company sponsored the arrangement. The insurer did not provide trustee services itself nor through a related entity; rather, custodial services were provided by an unrelated bank. In all other respects, the services appeared to be the same as in the first opinion, with the insurer receiving fees from the mutual funds for similar shareholder, subtransfer agency and marketing services. All fees payable to the insurer by the mutual funds were disclosed both in the mutual fund prospectuses and in the insurer's marketing materials. However, unlike the first opinion, the insurer will keep all fees received from the mutual funds.
The DOL ruled that in this type of relationship, the insurer's power to add or eliminate mutual funds would not cause the insurer to become a plan fiduciary, if the plan has the authority to accept or reject the changes after advance notice of any fee changes and a reasonable time to secure a new service provider if the plan so desires. Thus, since the insurer was not a fiduciary under these circumstances, the receipt of fees from the mutual funds was not a prohibited kick-back.