Employment of a plan trustee’s relative

P/OPINION 75-137


                                                         3(14)
                                                         3(15)✓
                                                         404
                                                         406
                                                         408
                                                         414


                          May 13, 1975


Dear           :

This is in response to your letter of March 19, 1975,
in which you inquire whether it would constitute a
breach of a fiduciary duty or a prohibited transaction
under the Employee Retirement Income Security Act of
1974 (the Act) for the trustees of an employee benefit
plan covered by the Act to permit a close relative
of one of the trustees to work for the fund as a
claims representative. Your letter points out that
the remuneration paid to the claims representative
is reasonable and the claims representative is
reasonably qualified.

Under section 406(a)(1)(C) of the Act, it is a prohibited
transaction for a plan fiduciary -- such as a trustee --
to cause the plan to engage in a transaction if he or she
knows or should know that the transaction constitutes
a direct or indirect furnishing of services between
the plan and a party in interest. Under section 3(14)(F)
of the Act, a relative (as defined in section 3(15) of the
Act) of a fiduciary is a party in interest. Therefore,
it is a prohibited transaction for a plan fiduciary to cause
the plan to engage in a transaction which he or she knows to
be a furnishing of services between the plan and a relative
of a plan fiduciary. If the person is not a "relative"
to the fiduciary within the meaning of section 3(15)
of the Act, there is no prohibited transaction.
2


P/OPINION 75-137


You should note, however, that if the situation
described in your letter meets the requirements of
section 414(c) (4) of the Act, section 406 may not
apply until June 30, 1977. A copy of ERISA IB 75-1
issued by the Department of Labor on December 31, 1974,
to clarify the scope of section 414(c)(4) is enclosed.
Additionally, if a plan fiduciary believes that the
transaction described in your letter meets the criteria
set forth for administrative exemption in section 408(a)
of the Act, the fiduciary may apply for such an exemption.

Other fiduciary duties are set forth in section 404 of
the Act. In particular, section 404(a)(B) requires
that a fiduciary discharge his or her duties with
respect to a plan with the care, skill, prudence, and
diligence under the circumstances then prevailing that
a prudent man acting in a like capacity and familiar
with such matters would use in the conduct of an
enterprise of like character and with like aim. Whether
the arrangement proposed in your letter would violate
this standard is a question which can only be determined
in the light of all the surrounding facts and circumstances.

It should be further noted that, if the plan is a qualified
plan under section 401 of the Internal Revenue Code, the
plan would be subject to analogous prohibited transaction
provisions contained in section 4975(c)(1) of the Internal
Revenue Code.

Sincerely,