|
|
|
|
|
Theodore Konshak
Negotiated Pension Plans, Ltd.
1107 Wilson Ave.
Green Bay, Wisconsin 54303-4206
|
|
Dear Mr. Konshak:
|
|
This is in response to your request for an information letter concerning the
payment of expenses by an employee pension benefit plan in connection with
actuarial services required under section 103(a)(4)(A) of the Employee
Retirement Income Security Act of 1974 (ERISA). Specifically, you have
raised the following three issues: (1) whether a plan administrator must
solicit fee quotations in selecting an actuary to provide services to a
plan; (2) whether a plan's payment for actuarial services in excess of the
lowest quoted fee would violate the fiduciary provisions of ERISA; and (3)
if a service provider is compensated for more than one category of services
(e.g. actuarial, administrative and legal), whether the plan administrator
must separately report on the Schedule C (Form 5500) the compensation paid
to the service provider for each category of services.
|
|
Section 103(d) of ERISA provides, with certain
exceptions not applicable here, that an annual report with respect to an
employee pension benefit plan shall include an actuarial statement
applicable to the plan year identifying, among other things, the
contributions, assets and liabilities of the plan, and the actuarial
assumptions used to determine the liabilities. Section 103(a)(4)(A) of
ERISA provides that the administrator of an employee benefit pension plan
subject to the reporting requirements of subsection (d) of this section
shall engage, on behalf of all plan participants, an enrolled actuary who
shall be responsible for the preparation of the materials comprising the
actuarial statement required under subsection (d).(1)
|
|
The selection of an actuary to provide the required services under section
103(a)(4)(A) of ERISA is an exercise of discretionary authority or control
with respect to the management and administration of the plan within the
meaning of section 3(21) of ERISA, and therefore constitutes a fiduciary act
subject to the general fiduciary responsibility standards and prohibited
transaction provisions contained in Title I of ERISA. Section 404(a)(1) of
ERISA requires, among other things, that a fiduciary discharge his or her
duties with respect to a plan solely in the interest of the participants and
beneficiaries and with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of like character with like aims.
|
|
Section 406(a)(1)(C) and (D) of ERISA provide, in part, that a fiduciary
with respect to an employee benefit plan shall not cause the plan to engage
in a transaction if he or she knows or should know that such transaction
constitutes a direct or indirect furnishing of services between the plan and
a party in interest with respect to the plan or transfer to, or use by, or
for the benefit of, a party in interest, of any assets of the plan. Section
408(b)(2) of ERISA provides a statutory exemption from the prohibitions of
section 406(a) for contracting or making reasonable arrangements with a
party in interest, including a fiduciary, for office space, or legal,
accounting, or other services necessary for the establishment or operation
of the plan, if no more than reasonable compensation is paid therefor.
|
|
In selecting a service provider such as an enrolled actuary, the responsible
plan fiduciary must engage in an objective process designed to elicit
information necessary to assess the qualifications of the service provider,
the quality of the work product, and the reasonableness of the fees charged
in light of the services provided. In addition, such process should be
designed to avoid self-dealing, conflicts of interest or other improper
influence. What constitutes an appropriate method of selecting a service
provider, however, will depend upon the particular facts and circumstances.
Soliciting bids among service providers at the outset is a means by which
the fiduciary can obtain the necessary information relevant to the
decision-making process. Whether such a process is appropriate in subsequent
years may depend, among other things, upon the fiduciary's knowledge of a
service provider's work product, the cost and quality of services previously
provided by the service provider, the fiduciary's knowledge of prevailing
rates for the services, as well as the cost to the plan of conducting a
particular selection process. Regardless of the method used, however, the
fiduciary must be able to demonstrate compliance with ERISA's fiduciary
standards.
|
|
Because a number of factors will necessarily be considered by a fiduciary
when selecting a service provider, a fiduciary need not necessarily select
the lowest bidder when soliciting bids, although the compensation paid to
the service provider by the plan must be reasonable in light of the services
provided. The fiduciary should not consider one factor, such as the lowest
fee bid for services, to the exclusion of any other factor, such as the
quality of the work product. Rather, the decision regarding which service
provider to select should be based on an assessment of all the relevant
factors, including both the quality and cost of the services.
|
|
You also asked a question about the Schedule C,
"Service Provider and Trustee Information," which is required to
be attached to the Form 5500 to report, among other things, all persons who
received, directly or indirectly, $5,000 or more in compensation from the
plan for services rendered during the plan year.(2)
The Schedule C (Form 5500) requires the listing of the following information
regarding each such service provider on a separate line: name and employer
identification number (EIN) of the service provider (columns "(a)"
and "(b)"); official plan position (column "(c)");
relationship to the employer, employee organization, or any person known to
be a party-in-interest, (column "(d)"); total compensation paid by
the plan (columns "(e)" and "(f)"); and "Nature of
service code" (column "(g)"). The instructions for column (g)
tell the filer to enter from a list "the code that best describes the
nature of services provided to the plan," and further explain that
"[i]f more than one service was provided, enter only the code of the
primary service." Therefore, while the total compensation paid to a
service provider for all types of services rendered must be reported, only
the primary service needs to be identified.(3)
|
|
We hope this information will be helpful to you.
|
|
Sincerely,
Bette J. Briggs
Chief, Division of Fiduciary
Interpretations
Office of Regulations and
Interpretations
|
|
|
|
-
See also the Department's regulations at 29
C.F.R. §2520.103-1,
et. seq., under which the Form 5500 (for plans with 100 or more participants)
and the Form 5500-C/R (for plans with fewer than 100 participants), together
with the required statements and schedules, constitute an alternative method of
compliance or simplified annual report for plans subject to the annual reporting
requirements in Title I of ERISA.
-
The Schedule C must also be filed to identify plan
trustees who served during the plan year, and to provide information on certain
services providers whose appointments were terminated (such as accountants or
enrolled actuaries). The Schedule C is not a required attachment to the Form
5500-C/R.
-
This information relates to the 1996 Form 5500. For future
plan year reports, you should check both the form and instructions carefully for
changes. Furthermore, we note that lines 32(g)(1)-(10) of the 1996 Form 5500
require that administrative expenses paid by or charged to the plan be reported
by category of expense (e.g., accounting fees, actuarial fees, legal fees
contact administrator fees, etc.).
|
| |
|
