CCA 200930039: Chief Counsel relays DOL view on fiduciary involvement in a prohibited transaction

Plain-English summary

This Chief Counsel Advice relays an informal Department of Labor view concerning a fiduciary's use of a retirement plan's investment in a mutual fund. The DOL view was that, unless the fiduciary needed the plan investment to carry out a personal scheme, the facts did not appear to involve a prohibited transaction. The DOL also viewed involving the plan in an illegal scheme as a fiduciary violation, with potential liability under ERISA section 409 for resulting losses. Because those fiduciary breaches would fall under DOL jurisdiction, the advice recommends referring the case to the DOL field office.

Ruling snapshot

• Question: When might a fiduciary's use of a plan investment in a mutual fund involve a prohibited transaction or an ERISA fiduciary breach?
• Outcome: Advice given.
• Key authorities: IRC § 4975; ERISA §§ 404 and 409; DOL Field Assistance Bulletin 2006-01

Full text (IRS public release)

ID: CCA_2009060308440350 Number: 200930039
Release Date: 7/24/2009
Office: -------------------------
UILC: 4975.00-00

From: --------------------
Sent: Wednesday, June 03, 2009 8:49 AM
To: --------------------------------------------
Cc: --------------------
Subject: Section 4975 case ---------

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To give you a heads up I asked DOL about the facts in this case and I was told the following:
"Informally, it seems to us that unless the fiduciary needed the plan investment in the mutual fund to carry out his scheme, (e.g. he relied on the plans investment to complete a transaction he couldn't do alone in his personal capacity) there's not a PT. But, it definitely would be a 404 violation to get the plan involved in an illegal scheme, and the fiduciary would be liable to the plan under section 409 of ERISA for any losses the plan suffered as a result, i.e., the penalties and disgorgement."

DOL issued a Field Assistance Bulletin on the allocation of the proceeds of SEC settlements with mutual fund - it did not deal with your issue however. See the attached DOL Field Assistance Bulletin 2006-01 (April 19, 2006).

The violation that DOL's mentions are fiduciary breaches and would be under the jurisdiction of DOL. I would recommend referring to the case to the DOL field office especially if the taxpayer's company was involved in the handling of other qualified plans.

If you want to talk further you can call us when you get in. My telephone number is ---------------------- -and ------------------------phone number is ---------------------.

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