This is an article by attorneys Dan Brandenburg and Andrew Zuckerman of the Washington D.C.(former) law firm of Sanders Schnabel & Brandenburg in response to questions to Dan during speeches at SPBA meetings when he has spoken about TPA fiduciary requirements. Besides this explanation of what is allowed. The website contains a companion PTE-84 24 discussion with a sample disclosure form.
The Employee Retirement Income Security Act of 1974 as amended (ERISA) Section 406(a) and (b) contains certain restrictions that apply to transactions between "parties in interest" such as Third Party Administrators (TPAs) and the benefit plans they administer. Violations of restrictions could give rise to an excise tax upon the TPAs under Section 4975 of the Internal Revenue Code (pension plans) and 502(i) of ERISA (welfare plans). ERISA Section 408 contains an exemption which permits parties in interest to receive reasonable compensation for services required, such as recordkeeping functions performed by TPAs, without giving rise to the excise tax. Unfortunately, section 408 does not apply to sales commissions from insurance companies received either directly or indirectly by a party in interest when plan assets are used to purchase insurance contracts. Prohibited Transaction Class Exemption 84-24 (formerly known as 77-9), was issued by the Department of Labor to permit, under limited circumstances, the receipt of these commissions by certain parties in interest and plan fiduciaries such as insurance agents and brokers, pension consultants, insurance companies, investment companies, and investment company principal underwriters. Please note that PTE 84-24 limits the exemption's application to parties in the above-enumerated categories who are not Trustees of the Plan (other than non-discretionary trustees who do not render investment advice with respect to Plan assets), the Plan Administrator, a fiduciary who in writing is authorized to manage, control, or dispose of Plan assets using discretion, or an employer any of whose employees are covered by the Plan.
In general, the transaction must be entered into by the insurance agent or broker in the ordinary course of his business, the terms must be at arms-length, the combined total of all sums received for all services rendered must be reasonable, an independent fiduciary of the Plan must receive information concerning the relationship of the agent or broker to the insurance company recommended, the sales commission received, a description of any charges, fees, discounts, penalties or adjustment in connection with the contract and an acknowledgement in writing by the fiduciary that this information must be received and the transaction must be approved by the independent fiduciary. In addition, the independent fiduciary may not receive either directly or indirectly any compensation or consideration as a result of the transaction.