EBSA Releases New Batch of ERISA Advisory Opinions

February 14, 2011 (PLANSPONSOR.com) – Federal regulators have issued a series of new advisory opinions from correspondents asking for interpretations of the Employee Retirement Income Security Act (ERISA) including the determination of potential conflicts when hiring a broker/dealer.  

Advisory Opinion 2011-06A dealt with questions about whether service transactions that may occur between the Mitsubishi Group Brokers and employee benefit plans for which Aberdeen Asset Management acts as a fiduciary due to Mitsubishi Bank’s ownership of up to 19.9% of the common stock of Aberdeen PLC, the parent corporation of AAM, and its appointment of one member to Aberdeen PLC’s board of directors would run afoul of ERISA Section 406(b).

EBSA reviewed the legal framework that the situation described in the question might raise, and then regulators offered this guidance:

“In determining whether other types of common ownership or control relationships between fiduciaries and potential service providers constitute an interest in the service provider that may affect the fiduciaries’ best judgment, the fiduciaries should consider all the facts and circumstances relating to the nature and extent of the common ownership or control relationship,” the advisory letter indicated.

Further, EBSA offered, “Where a relationship with a service provider may affect the exercise of a fiduciary’s best judgment as fiduciary, the fiduciary may not exercise the authority, control, or responsibility that makes such person a fiduciary with respect to the transaction. For some transactions, it may be possible for an investment manager to implement objective criteria and policies, approved by the investing plans, so that the investment manager does not exercise any fiduciary judgment in connection with the transaction.

Whether a fiduciary has an interest in another party that may affect the fiduciary’s best judgment is an inherently factual question and that consideration must be given to all relevant facts and circumstances, “including evidence bearing on all relationships between the fiduciary and the other party, and should not be confined only to party in interest relationships under section 3(14) of ERISA,” the advisory opinion said.

The advisory opinion is at http://www.dol.gov/ebsa/regs/aos/ao2011-06a.html .

More information about the EBSA Advisory Opinions is at http://www.dol.gov/ebsa/regs/AOs/main.html 

Navajo Tribal Court Orders 

Another advisory opinion resulted from a question about whether a Navajo  Nation Tribal Court’s domestic relations order would be considered a judgment within  Section 206(d)(3)(B)(ii) of ERISA.

According to the opinion, EBSA noted that some states have adopted laws to address tribal court jurisdictional issues relating to domestic relations orders. So, EBSA said, a tribal court order may constitute a “judgment, decree or order made pursuant to state domestic relations law” for purposes of ERISA section 206(d)(3)(B)(ii), if it is treated or recognized as such by the law of a State that could issue a valid domestic relations order with respect to the participant and alternate payee.

However, as far as the case prompting the initial inquiry was concerned, EBSA warned that neither the submission nor its review of New Mexico law indicates that New Mexico recognizes or treats orders of the Family Court of the Navajo Nation as orders issued pursuant to New Mexico state domestic relations law..

The EBSA Advisory opinion is at http://www.dol.gov/ebsa/regs/aos/ao2011-03a.html 

More information about the EBSA Advisory Opinions is at http://www.dol.gov/ebsa/regs/AOs/main.html 

State Law Pre-Emption  

In another advisory opinion, issued by EBSA in response to a question posed by the Florida Department of Financial Services,  EBSA concluded that two health plans doing business in Florida were, in fact, multiple employer welfare arrangements (MEWA) under ERISA but that ERISA does not pre-empt state of Florida insurance laws from being applied to the programs.

Pursuant to ERISA section 514(b)(6)(A), if an employee welfare benefit plan MEWA is not “fully insured,” state insurance laws may be applied to the MEWA to the extent that such laws are “not inconsistent” with the provisions of Title I, EBSA said.  

If such a plan MEWA is considered “fully insured” for ERISA purposes, application of state insurance laws is limited to laws pertaining to the maintenance of specified levels of contributions and reserves.  EBSA concluded, on the other hand, “and more pertinent to your request”, if a MEWA is not itself an ERISA-covered employee welfare benefit plan, nothing in Title I of ERISA would preclude a state from applying its insurance laws to regulate the MEWA, EBSA said.  

The EBSA Advisory Opinion is at http://www.dol.gov/ebsa/regs/aos/ao2011-02a.html 

More information about the EBSA Advisory Opinions is at http://www.dol.gov/ebsa/regs/AOs/main.html 

IRA Investment Limits

In response to a letter from San Diego lawyer William A. Adams, EBSA noted in another advisory opinion that if an individual retirement account purchased a promissory note and deed of trust held by a bank, the purchase would be a prohibited transaction if the IRA owner, Donald H. Warfield, and his spouse, Betty L. Warfield, are obligors on the note and if title to the real property encumbered by the deed of trust is held by a family trust for which the IRA owner and his spouse are trustees.

“Based upon the facts you describe, it is the opinion of the Department that a prohibited extension of credit, in violation of Code section 4975(c)(1)(B), will exist between the IRA and the Warfields, disqualified persons with respect to the IRA, once the IRA acquires the Note from the Bank,” the opinion said.

Under those circumstances, it also is the department's view that the purchase of the note itself “would be a separate prohibited transaction under tax code Section 4975(c)(1)(D) and (E),” DOL said.

The EBSA advisory opinion is at http://www.dol.gov/ebsa/regs/aos/ao2011-04a.html .

More information about the EBSA Advisory Opinions is at http://www.dol.gov/ebsa/regs/AOs/main.html 

Use of Demutualization Proceeds

In a separate opinion, 2011-EBSA ruled on the use of $800,000 of Prudential Financial,  common stock as “demutualization proceeds” in connection with Prudential’s mutual-to-stock conversion. received by the J.B. Hunt Transport Services.

EBSA responded by saying that if not otherwise prohibited by a plan's terms, fiduciaries of an employee welfare benefit plan may use demutualization proceeds that are plan assets for the benefit of all current participants and beneficiaries, rather than only for those who contributed to premium payments for the insurance policies.

EBSA said also that “reasonable expenses incurred by plan fiduciaries in determining how best to carry out their fiduciary duties may be legitimate expenses of the plan.”

The EBSA advisory opinion is at http://www.dol.gov/ebsa/regs/aos/ao2011-05a.html 

 More information about the EBSA Advisory Opinions is at http://www.dol.gov/ebsa/regs/AOs/main.html .