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August 31, 2011 at 08:00 PM
It is not a fiduciary conflict of interest nor a prohibited transaction under the Employee Retirement Income Security Act (ERISA) to make a retirement plan provider’s affiliated funds part of an investment strategy, according to a new whitepaper.
The Prudence Standard : Affiliated Products and Services, a paper commissioned by Great-West Retirement Services and authored by Fred Reisch, Bruce Ashton and Summer Conley of Drinker Biddle & Reath LLP, found that rejecting funds from consideration solely on the basis that a fund is an affiliate of the record-keeper could potentially be a breach of one’s fiduciary responsibility.
When fees received by the record-keeper and affiliated fund are reasonable compensation and the fiduciaries selecting the affiliated funds do not receive additional compensation or benefit from selecting the fund, “there is no prohibited transaction under ERISA,” the white paper concludes.
The paper adds that, in respect to a conflict the record-keeper may have regarding the relationship with the affiliated fund, “this conflict can be managed through disclosures to the plan fiduciaries and participants.”
