A fiduciary can petition the dol for a one time

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only come into play if no other exemption exists for the transaction. A fiduciary can petition the DOL for a one-time exemption if they can prove that the exemption is administratively feasible, in the best interests of the plan’s participants, and ultimately protects the rights of the plan’s participants. Some common transactions that will always raise a regulatory red flag include loans from the plan assets to the company, the company’s owners, or relatives of the company’s owners. Another huge red flag is a contribution of anything other than cash. If the company were to contribute an ownership interest in an income-producing real estate property, not only would the fiduciary need to contend with the potential for UBIT, but they will need to be concerned with valuation issues. This type or transaction
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should just be avoided. Another common trouble spot is if the plan sponsor uses plan assets to purchase property or voting shares of another company and then uses the plan’s ownership for the plan sponsor’s ultimate benefit. One final exemption exists for investment advisors. Because they provide investment advice to a plan or directly to the plan’s participants, investment advisors are typically deemed to hold a fiduciary status. Recall that fiduciaries are prohibited from self-dealing, and charging a fee to the plan is self-dealing. So, how do they get paid? Investment advisors are permitted to charge fees if certain criteria are met. First, the fees must be static (they cannot vary depending upon the investment options selected). However, they can charge a different level of fees if computer models are involved in the financial advice because computer models (algorithmic trading) are very specialized and very costly. Second, the fees must be specifically authorized by the plan’s fiduciary and monitored by the fiduciary on an on-going basis. Third, the fees must be audited annually to ensure compliance with these other criteria. Limiting Fiduciary Liability Fiduciaries are personally liable for any losses that result from a breach of their fiduciary duty. There is a provision to clawback (take back) any profits that the fiduciary earns illicitly from personal transactions with the plan assets. Fiduciaries are also personally liable for breaches of duty committed by other plan fiduciaries! They could be on the hook if they knowingly participated in an illicit activity with a co- fiduciary or helped to conceal a violation. This includes deleting emails or shredding paperwork. They could also be liable if they failed to put in place controls to prevent another fiduciary's breach of duty. If the regulators do find that a breach of duty has occurred, they can also charge the party on the other end of the transaction a 15% penalty! If you could visualize a fiduciary’s role as an “investment”, one would certainly be fair to say that it is an investment with moderate return potential and unlimited risk. The risk profile is not really a great deal for the plan fiduciary. Yet, someone must fill this important role to meet the administrative and investment needs of the participants.
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  • Spring '14
  • VOSS,JAMESA
  • Cash balance plan, HCES

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