While conflicts of interest—which can often also constitute prohibited transactions—have been an issue for some time, the awareness of conflicts was elevated by the DOL’s proposed regulation under ERISA section 408(b)(2). The proposed regulation would have required disclosures of certain conflicts of interest by service providers, regardless of whether or not they were fiduciaries. It appears that approach is becoming engrained into the fabric of the benefits community. For example, the Defined Contribution Fee Disclosure Act recently introduced by Senators Harkin and Kohl also proposes to require disclosures of conflicts of interest.

As a result, service providers need to be diligent about disclosing their conflicts and fiduciaries need to be rigorous in their analysis of potential conflicts . . . and in taking steps to protect their plans and participants from those conflicts. Needless to say, that is particularly true where the conflicts also constitute prohibited transactions under ERISA and the Internal Revenue Code.

To make matters worse, the appeal of conflicted transactions is even greater during difficult economic times . . . similar to those we are now experiencing. As a result, we have written a White Paper entitled “The Fiduciary Duty to Avoid Conflicts of Interest in Selecting Plan Service Providers.” The White Paper contains a discussion of the relevant law and specific examples of conflicted situations.

We hope this White Paper is useful to you as a plan sponsor or as an adviser to plans.

Fred Reish & Joe Faucher