A Glastonbury-based fiduciary investment adviser has agreed to pay $1,265,608.70 to 13 pension plans to resolve alleged violations of the Employee Retirement Income Security Act (ERISA).
An investigation by the U.S. Department of Labor's Employee Benefits Security Administration (EBSA) found that the investment adviser made investments in mutual funds on behalf of ERISA-covered defined benefit plan clients and received 12b-1 fees from those funds. A 12b-1 fee is paid by a mutual fund out of fund assets to cover certain expenses. The group failed to fully disclose the receipt of the 12b-1 fees, and to use those fees for the benefit of the plans either by directly crediting the amounts to the plans or by offsetting other fees the plans would be obligated to pay the company.
If you, as an investment adviser, are a fiduciary under ERISA with respect to plan investments in mutual funds, you cannot use your fiduciary authority to receive an additional fee or to receive compensation from third parties for your own personal account in transactions involving plan assets, says EBSA. The agency says it is very pleased that recently finalized fee disclosure regulations issued by the Labor Department will require fiduciaries like this group to be more transparent about the fees they receive when dealing with their plan clients.
Under the terms of the settlement, the group has agreed not to provide bundled investment advisory and actuarial services to any ERISA-covered defined benefit plan client without first entering into a written agreement, contract or letter of understanding that specifies the services provided and whether the company or its affiliates will act as a fiduciary to those plans. The company also will provide to clients a description of all compensation and fees received, in any form, from any source, involving any investment or transaction related to them.
The alleged violations in the case occurred between 2004 and 2010.