In a recent court ruling which is causing ripples in the legal sector of employee benefits, the Ninth Circuit Court concluded that plan fiduciaries were engaged in prohibited transactions following the modification of an existing recordkeeping contract, including the addition of brokerage and investment advisory services. This legal development is covered in detail by JDSupra.
As a ramification of this ruling, the court remanded the case to the district court for a re-assessment to decide whether these transactions are justifiable under the exemption for reasonable service agreements. Another point of contention to be scrutinized is whether the decision to amend the contract was imprudent in this case.
It is important for legal professionals such as yourself to carefully monitor this development, due to the implications that a case of this stature can have on the legality of service agreement modifications under consideration of indirect compensation. Corporate legal teams and law firms advising on employee benefits might want to examine their protocols concerning the amendment of existing recordkeeping contracts more closely.
Ninth Circuit’s verdict serves as a reminder to fiduciaries of the necessary due diligence needed in managing and modifying service agreements. It demonstrates the continued need for a careful review of any contract amendments, particularly when those modifications implicate additional or new services.
This recent decision continues to bring the issue of indirect compensation into the legal spotlight. Current practices and legal advice regarding service agreement modifications are likely to come under sharper scrutiny in the light of this case. The corporate legal fraternity must be proactive and thoroughly review their existing practices in the coming months.