On July 3, 2013 the United States Department of Labor (“DOL”) issued Advisory Opinion 2013-03A regarding the status of revenue sharing payments between a qualified plan, a retirement plan service, and a third party investment company. The DOL ruled that certain funds held in the record-keeper’s general account are not “plan assets” to be “held in trust” under the applicable ERISA statutes.


The Advisory Opinion was issued in response to an inquiry from Principal Life Insurance Company (“Principal”). Principal acts as a record-keeper and performs other administrative tasks for qualified plans. Principal offers its proprietary suite of investment products, as well as making third party investment options such as mutual funds available to the plans. Principal receives fees, such as 12b-1 fees, from these third-party investments in its capacity as a broker. Principal retains all the fees in its general corporate asset account; it does not segregate the fees into a special bank or custodial account for the plans. Often, the terms of the agreements with the plans require Principal to maintain a bookkeeping account of these funds. Additionally as a part of its agreements with plans, Principal makes arrangements to pay for certain plan-related expenses (such as the cost of actuaries, accountants, or attorneys) out of the revenue received from the third party investment company.

Revenue Sharing Payments are not Plan Assets

Principal requested that the DOL offer guidance regarding whether the funds held in their general corporate accounts should be considered “plan assets” under the ERISA “held in trust” requirement and other applicable requirements of ERISA.

The DOL ruled that revenue sharing payments carried on the books of a service provider are not plan assets under ERISA. The DOL explained that under “ordinary notions of property rights, the assets of a plan . . . include any property, tangible or intangible, in which the plan has a beneficial ownership interest.” For example, a plan would have a beneficial ownership interest in funds that are held in a bank account titled in the name of the plan. Alternatively, a plan has a beneficial ownership interest in the funds if an agreement specifically indicates that the funds are the property of the plan. In this case, DOL found no reason to believe that “amounts recorded in the bookkeeping account as representing revenue sharing payments are assets of a client plan before the plan actually receives them.”

However, the DOL did recognize that a qualified plan may have a contractual right to receive some of the funds, or to have them applied to expenses. Thus, the plan’s contractual claim on the funds would be a plan asset. In the same way, if an administrative service provider failed to apply the revenues to the plan’s expenses, in breach of an applicable agreement, the accruing claim would be an asset of the plan.

Further Guidance Regarding Fiduciaries’ Duties

The DOL also discussed how several provisions of ERISA are applicable to revenue sharing arrangements.

  • ERISA § 408(b)(2): Principal, and similar recordkeeping entities are considered parties in interest under ERISA because they provide services to a plan. Therefore, the contract between Principal and a plan must be reasonable. Additionally, compensation and fee disclosures must be documented, and only reasonable compensation can be charged.
  • ERISA § 406(b): The DOL noted that Principal, or another similarly situated investment service provider could potentially be considered a fiduciary of a plan. One of ERISA’s definitions of a fiduciary is a party who provides investment advice for a fee. Therefore, if Principal uses any of the authority which makes it a fiduciary cause a plan to select funds that pay Principal revenue sharing fees, a violation of this provision would occur.

Plan fiduciaries are required to be informed about all aspects of revenue sharing agreements with service providers in order to ensure that the compensation for services is no more than reasonable. Fiduciaries should be sure they have sufficient information regarding the fees being paid to the plan’s service provider, as well as ensure they understand the formula, methodology, and assumptions used by the service provider in arriving at the amounts to be returned to the plan or the amounts to be applied to the plan’s expenses.

Fraser Stryker is a leader in employee benefits law. Attorneys in the Firm’s Employee Benefits & ERISA Practice Group advise individuals, business entities, governments, and nonprofit/tax-exempt organizations on a wide variety of employee benefits matters and transactions. Fraser Stryker works with employers to implement and maintain employee benefit plans that help attract and retain top talent. Fraser Stryker also represents ERISA plan fiduciaries and service providers advising them on their duties and responsibilities, please contact Nicole R. Konen, or Emily Wischnowski.

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