Fees and Subsidies Paid to Administrator by Investment Provider (Posted December 31, 2001) Technical Tip 27: The following question and answer are from the DOL Q&A Session at the 2000 ASPPA Annual Conference: If a TPA receives subtransfer agency fees from a mutual fund company and the employer pays all the plan expenses, including the TPA fees, must the TPA disclose the subtransfer agency fees it receives to the participants as well as the employer, even if the participants are not affected? DOL Response: See the Frost (97-15A) and Aetna (97-16A) Advisory Opinions. The plan fiduciaries responsible for selecting the plan's investments have a fiduciary duty under ERISA to be aware of all fees and expenses paid directly or indirectly from plan assets--and the services to the plan as a result of those payments. The plan fiduciaries also have an obligation to determine that the fees, in the aggregate (which would include the subtransfer agency fees), are reasonable relative to the services received. If the TPA is not a fiduciary, it does not have an obligation under ERISA to disclose the subtransfer agency fees (see the Aetna Advisory Opinion). However, if the TPA's fees, in the aggregate, are unreasonable, then a prohibited transaction has occurred under §406(a) and the plan is entitled to recover the excessive amount of the fees. On the other hand, if the TPA is a fiduciary, and does not disclose the fees, the TPA has breached its fiduciary responsibilities by failing to disclose these fees and may have committed a prohibited transaction (see the Frost Advisory Opinion and ERISA §§406(b)(1) and (3)). If a prohibited transaction under 406(b) occurred, then the TPA owes the full amount of those fees to the plan. MODERATORS COMMENT: While it is not clear, there may be state law claims for fraud or unfair business practices if fees are not disclosed. This is a complex issue which is highly fact-specific and which may vary from state to state. In addition, there are preemption issues. Caveat: The answer was drafted by Fred Reish and Brad Huss, the program moderators, based on their understandings of discussions with four senior officials of the Pension and Welfare Benefits Administration (PWBA) of the U.S. DOL. As a result, it does not represent a formal or binding position statement by the PWBA. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.