April 19, 2006 – The DOL issues Field Assistance Bulletin No. 2006-01 on the Distribution to Plans of Settlement Proceeds Relating to Late Trading and Market-Timing. It addresses how settlement proceeds should be allocated and distributed to participants and beneficiaries when a plan, or an intermediary for the plan, receives a settlement amount on behalf of the plan.
One of the specific issues addressed by the DOL in FAB 2006-01 is whether an independent distribution consultant (IDC) is a fiduciary under ERISA. IDCs are appointed pursuant to an order by the Securities and Exchange Commission (SEC) and given the task of establishing a plan to distribute funds from settlements to affected shareholders. The DOL said that, since the IDC has not been engaged to act on behalf of an employee benefit plan and is not an agent of the plan, the IDC is not a fiduciary for purposes of ERISA section 3(21).
An IDC is different from an intermediary receiving settlement proceeds on behalf of employee benefit plan clients. An intermediary in this situation is assuming fiduciary responsibilities upon receipt of the settlement proceeds on behalf of the plan, and therefore is a fiduciary who must follow all of the requirements ERISA imposes on plan fiduciaries. The DOL said a fiduciary in this situation may charge plans for any direct expenses incurred in connection with the receipt, allocation and/or distribution of settlement fund proceeds but an intermediary, as a plan fiduciary, cannot compensate itself from plan assets beyond direct expenses without violating the prohibited transaction rule of ERISA section 406.