EBSA Press Release: Labor Department Exemption Saves Employees Plans' Fees On Plan Investments [08/08/1997]

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Employee benefit plans will save millions of dollars in brokerage fees under a U.S. Department of Labor class exemption allowing the transfer of benefit funds from banks and investment advisers to no-load mutual funds. Such transactions currently are prohibited by the Employee Retirement Income Security Act (ERISA) unless the department grants an exemption allowing the transactions.

Federated Investors, a mutual fund sponsor, requested the exemption last year to cover investments where plan assets are converted from collective investment funds to mutual funds. The company requested the exemption because many banks have been switching from collective investment funds (CIFs) to mutual funds.

The final exemption, however, was expanded to include transfers of plan assets by banks and non-bank registered investment advisers. Under the exemption, federal or state banks and registered investment advisers covered by the Investment Advisers Act of 1940 may convert plan funds into mutual funds if:

• information is disclosed about the mutual fund and the conversion process, including why the exchange of investments is appropriate to the plan;
• an independent plan fiduciary approves in advance by written authorization each transfer of CIF assets in exchange for shares of a mutual fund;
• plan clients pay no commissions or other fees in connection with the purchase of mutual fund shares;
• written confirmation is provided to the independent plan fiduciary within 105 days of the transactions;
• within 30 days information is furnished which discloses the identity of each security not listed on a national exchange or NASDAQ and the identity of the pricing service or market-maker contacted to determine the value of such securities;
• combined total fees received by a bank from a client plan for services received cannot exceed reasonable compensation;
• the value of mutual fund shares received by a plan equals the current market value of its pro-rata share of assets in the CIF on the date of the exchange; and
• the independent plan fiduciary receives ongoing disclosure of information, such as an updated prospectus and a report or statement of fees paid to the bank.

Two major changes from the exemption proposed on Nov. 13, 1996, are: expansion of the scope of the exemptive relief to include non-bank registered investment advisers as parties to the transactions, and the option to use electronic mail or facsimile as a means of providing independent plan fiduciaries with confirmation statements relating to asset transfers.