In Advisory Opinion 2013-03A, the Department of Labor provides guidance on whether revenue sharing payments that Principal Life Insurance Company ("Principal") receives for services are "plan assets" for purposes of ERISA.
The following facts were presented. Principal provides recordkeeping and related administrative services to retirement plans subject to Title I of ERISA, including 401(k) and other participant-directed defined contribution plans. Principal also makes available to plans a variety of investment options, including its own insurance company separate accounts and affiliated and unaffiliated mutual funds. Principal receives revenue sharing payments from these investments in the form of Securities and Exchange Commission Rule 12b-1fees, shareholder and administrative services fees or similar payments. Although Principal retains all of the payments, it may agree with a client plan to maintain a bookkeeping record of revenue sharing received in connection with the plan's investments.
Principal deposits the revenue sharing payments into its general asset accounts. It does not establish a special bank or custodial account to hold the revenue sharing payments. None of its agreements with the client plans call for Principal to segregate any portion of the revenue sharing payments for the benefit of any plan. Principal makes no representations to the plan fiduciaries or to any plan participants or beneficiaries that revenue sharing amounts it receives will be set aside for the benefit of the plan or represent a separate fund for payment of benefits or expenses under the plan.
In analyzing the facts, the DOL said that the assets of a plan generally include any property, tangible or intangible, in which the plan has a beneficial ownership interest. The identification of plan assets therefore requires consideration of any contract or other legal instrument involving the plan, as well as the actions and representations of the parties involved. Similarly, whether a plan has acquired a beneficial interest in specific assets also depends on whether an intent has been expressed to grant such a beneficial interest or a representation has been made sufficient to lead participants and beneficiaries of the plan reasonably to believe that such funds separately secure the promised benefits or are otherwise plan assets. On the other hand, the mere segregation of a service provider's funds to facilitate administration of its contract or arrangement with a plan would not in itself create a beneficial interest in those assets on behalf of the plan.
The DOL said that nothing in the facts presented would lead it to conclude that amounts recorded in the bookkeeping account as representing revenue sharing payments are assets of a client plan before the plan actually receives them. However, the DOL continued, the assets of a plan may include any type of property, tangible or intangible. Thus, the client plan's contractual right to receive the amounts agreed to with Principal, or to have them applied to plan expenses, would be an asset of the plan. Similarly, if Principal should fail to pay amounts as required by the contract or arrangement with the plan, the plan would have a claim against Principal for the amount owed and the claim itself would be an asset of the plan.