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CCH® PENSION AND BENEFITS — 8/25/06

Payment of 12b-1 fees out of mutual fund assets is not prohibited transaction

The payment of distribution-related expenses, known as 12b-1 fees, by a mutual fund, from mutual fund assets to an unrelated broker, is not the payment of a sales commission in violation of PTE 77-3 (see CCH Pension Plan Guide ¶16,603 ), according to an Employee Benefits Security Administration (EBSA) opinion letter. The sponsor of a 401(k) plan is an investment adviser to a family of mutual funds, and is one of four employers of employees participating in the 401(k) plan, which allows participants to direct their account investments among the mutual funds. The other three employers also provide services to the mutual funds.

The plan sponsor entered into an agreement with a party unrelated to the funds to provide plan administration services. The agreement also provides for the establishment of a self-directed brokerage account with another company unrelated to the funds, permitting participants to direct the investment of their account balances. One of the employers with employees participating in the plan is to pay a 12b-1 fee to this company. The EBSA pointed out that none of the four employers would retain any of that fee, and no commissions would be paid from participants' accounts except for the 12b-1 fee. The company with which the brokerage account is established is not a plan fiduciary, and is unrelated to any of the four employers, the EBSA ruled.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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