General Counsel of The SPARK Institute Larry Goldbrum said i n a SPARK news release, “Our comments are representative of the concerns raised by our membership and have been raised because of the possibility that the PBHG distribution plan could set precedent for future distribution plans.” The SPARK Institute members include the retirement plan recordkeepers that will be responsible for gathering and providing accountholder information, making certain allocations, receiving distributions, and making distributions to plan participants who are the intended beneficiaries of a substantial portion of the distribution at issue.
In its letter , SPARK referenced the Field Assistance Bulletin, issued by the Department of Labor (DoL) earlier this year (See DoL Issues Guidance on Allocating Mutual Fund Settlements ), which concluded that a retirement plan service provider becomes a fiduciary upon receipt of settlement funds, even if such entity is not otherwise a fiduciary with respect to the plan it services. The DoL guidance provides a safe harbor for retirement plan service providers if the service provider uses the allocation methodology outlined in the distribution plan.
In its proposed distribution plan , the SEC provides that omnibus account brokerage firms will provide information to the Fund Administrator to determine payments to omnibus accounts. SPARK said in its letter it is concerned the plan does not provide that the Fund Administrator will determine individual plan participant distribution amounts or reimburse the plan’s recordkeeper for identifying eligible participants and allocating settlement proceeds to individual accounts.
SPARK said in its letter, “It is unreasonable to expect a retirement plan recordkeeper to apply the specific allocation methodology in the Distribution Plan across thousands of participants in order to avoid unexpected fiduciary status.” SPARK also expressed concern that recordkeepers would not have the expertise or staff necessary to make individual account allocations.
SPARK asked that the SEC modify its distribution plan to either assign the task of determining participant level allocations to the Fund Administrator or provide for reimbursement to the plan recordkeeper. The Institute also asked the SEC to provide an estimate of the potential cost reimbursement for Omnibus Account Brokerage Firms to allow the recordkeeper to determine the most cost-effective way to handle the allocation. SPARK said that any costs incurred would likely be passed to participants and net with their distribution.
Also of concern to the Institute was the time allowed for identifying individual account allocations. The SEC provided in its plan that information would be provided within 60 days following approval of the distribution plan. SPARK said this was not enough time and requested the plan be modified to say that recordkeepers had 30 days to acknowledge notification from the Fund Administrator of distribution amounts and to assign a person to work with the Fund Administrator on a reasonable distribution method and timetable.
Other changes to the plan recommended by SPARK included a modification to allow month-end balances to be used for calculating payouts to shareholders, to require any entity involved in the distribution process to sign a confidentiality agreement, and to express who is responsible for tax reporting of the distributions.