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DOL Issues Guidance on Revenue-Sharing Arrangements

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July 2013

In Advisory Opinion 2013-03A, the DOL determined that revenue-sharing payments received by a plan recordkeeper did not constitute plan assets. More importantly, the opinion provided additional guidance on the subject of revenue-sharing arrangements in general and fiduciary standards applicable to such arrangements. Principal Life Insurance Co., which requested the opinion from the DOL, provides recordkeeping and other administrative services to a number of defined contribution plans, and makes investment options available for these plans. Principal receives and retains revenue-sharing payments from these investments (though Principal may agree with a client to maintain a record of such payments and apply them to pay plan administrative expenses, or apply them directly into a plan account). Principal asked the DOL for an opinion on whether these payments constituted “plan assets” of their clients’ plans.

The DOL applied “ordinary notions of property rights” to determine whether the payments were plan assets. The DOL ultimately concluded that while revenue sharing amounts would be plan assets in some circumstances, in this particular case nothing in the facts led to the conclusion that the payments were assets of the client’s plan “before the plan actually receives them.” However, the client plan’s “contractual right to receive the amounts” or to have them applied to plan expenses would be an asset of the plan. The DOL also cautioned that plan fiduciaries must act prudently and in the best interests of plan participants in the negotiation of the specific formula and methodology under which revenue sharing will be credited to the plan. While the DOL’s opinion does not answer all questions concerning revenue sharing arrangements, it provides some guidance that may help plan fiduciaries determine prudent strategies in this area.  

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