Principal Life Insurance Company wanted an advisory opinion regarding revenue sharing, probably because of concerns with how these payments are used to offset plan expenses as well as changes dealing with plan expenses and Form 5500.
In Advisory Opinion 2013-03A, the Department of Labor stated that revenue sharing and similar amounts carried on the books of a retirement plan service provider as a credit due the plan, if properly structured, are not ERISA “plan assets” prior to receipt by the plan.
So that in English, means that as long as a plan provider is careful with how they credit revenue sharing payments, especially by not giving them to the plan outright, or by contract, giving the plan an ownership position in these revenue sharing payments, they are not going to be ERISA plan assets.
Principal didn’t have any issues that made revenue sharing payments ERISA plan assets because they maintained a bookkeeping account tracking the credit; these credits were general assets of the service provided; and there was no agreements that provided that revenue sharing payments were held for the benefit of the plan.
The Advisory Opinion reiterated the obligation of the responsible plan fiduciary under ERISA §404, to make sure that the compensation paid to and among all service providers is reasonable and to monitor any revenue sharing arrangements between these providers.
Did this Advisory Opinion change the world? Not particularly for plan sponsor because they always had that duty to review plan expenses. For plan providers, it is some comfort that if they act appropriately in the bookkeeping of revenue sharing, that they won’t be using plan assets, which would bring a host of other problems. However, I’m sure that there are recordkeepers that are not bookkeeping revenue sharing payments correctly and I think this Advisory Opinion is a good wake up call for all providers to make sure that they are handling revenue sharing payments correctly.