(a) In general. Section 408(b)(2) of the Employee Retirement Income
Security Act of 1974 (the Act) refers to the payment of reasonable
compensation by a plan to a party in interest for services rendered to
the plan. Section 408(c)(2) of the Act and Sec. Sec. 2550.408c-2(b)(1)
through 2550.408c-2(b)(4) clarify what constitutes reasonable
compensation for such services.
(b)(1) General rule. Generally, whether compensation is
``reasonable'' under sections 408 (b)(2) and (c)(2) of the Act depends
on the particular facts and circumstances of each case.
(2) Payments to certain fiduciaries. Under sections 408(b)(2) and
408(c)(2) of the Act, the term ``reasonable compensation'' does not
include any compensation to a fiduciary who is already receiving full-
time pay from an employer or association of employers (any of whose
employees are participants in the plan) or from an employee organization
(any of whose members are participants in the plan), except for the
reimbursement of direct expenses properly and actually incurred and not
otherwise reimbursed. The restrictions of this paragraph (b)(2) do not
apply to a party in interest who is not a fiduciary.
(3) Certain expenses not direct expenses. An expense is not a direct
expense to the extent it would have been sustained had the service not
been provided or if it represents an allocable portion of overhead
costs.
(4) Expense advances. Under sections 408(b)(2) and 408(c)(2) of the
Act, the term ``reasonable compensation,'' as applied to a fiduciary or
an employee of a plan, includes an advance to such a fiduciary or
employee by the plan to cover direct expenses to be properly and
actually incurred by such person in the performance of such person's
duties with the plan if:
(i) The amount of such advance is reasonable with respect to the
amount of the direct expense which is likely to be properly and actually
incurred in the immediate future (such as during the next month); and
(ii) The fiduciary or employee accounts to the plan at the end of
the period covered by the advance for the expenses properly and actually
incurred.
(5) Excessive compensation. Under sections 408(b)(2) and 408(c)(2)
of the Act, any compensation which would be considered excessive under
26 CFR 1.162-7 (Income Tax Regulations relating to compensation for
personal services which consitutes an ordinary and necessary trade or
business expense) will
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not be ``reasonable compensation.'' Depending upon the facts and
circumstances of the particular situation, compensation which is not
excessive under 26 CFR 1.162-7 may, nevertheless, not be ``reasonable
compensation'' within the meaning of sections 408(b)(2) and 408 (c)(2)
of the Act.
[42 FR 32393, June 24, 1977]