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Eighth Circuit Decision Opens ERISA Door to Performance Fees and Also Narrows Defined Benefit Plan Participants Ability to Bring ERISA Class Actions

April 01, 2002

By ERISA Team

In a recent landmark decision, the 8th Circuit Court of Appeals has ruled that investment manager performance fees are permissible not withstanding the self-dealing prohibitions of  ERISA as long as the fees are reasonable. More specifically, in Harley v. Minnesota Mining and Manufacturing Co., the 8th Circuit held that a fiduciary investment advisor does not engage in a prohibited transaction under Section 406(b)(1) of ERISA where the advisor’s compensation is contingent upon the performance of an investment and the advisor does not use an independent evaluator to value the investment, provided that the advisor’s fee amounts to reasonable compensation.