Perspectives on Fiduciary Responsibility Planning for ...€¦ · Jane Jones Board Member Yes Yes (See above) Yes Jim Jones (no relation to John) CFO Yes, Jim hired the firm, which

Perspectives on Fiduciary Responsibility

• Michael Gouldin, Gouldin & McCarthy

• Dave Dacey, WithumSmith+Brown

• June 8, 2011

Planning for Recent Developments and Best Practice Considerations

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Today’s Disclaimer

The information presented in this webinar represent our perspectives, is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon

without first consulting with appropriate qualified professionals for your plan’s individual

facts and circumstances.



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Understanding Respective Roles

• Auditors audit, identify findings and communicate findings to clients

• Co-fiduciaries work to maintain the successful operations of the plan

• Qualified ERISA attorneys practice law to help plans stay in compliance and out of trouble

• Plan sponsors are ultimately responsible for the successful operation of the plan



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Who are Considered Fiduciaries?

• Exercise any discretionary authority or control over:– Managing the plan

– Managing or disposing assets of the plan

• Renders (or has authority to render) investment advice for a fee or other direct or indirect compensation

• Has discretionary authority or responsibility in administrating the plan

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Let’s Look at an

Example Evaluation!



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Dealing With Plan Deficiencies



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Auditing ConsiderationsPlan Deficiencies

Disclosure and / or Auditor Report Management Comment Requirement

Prohibited party-in-interest transaction disclosure

Tax status for potential plan disqualification disclosure

Supplemental schedules

• Loans or fixed income obligations in default

• Leases in default

• Untimely deposits

• Non-exempt prohibited transactions

Breach of fiduciary responsibility

Prohibited party-in-interest transactions

Loan or leases in default

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Auditing Prohibited Transactions• Be aware of the possibility of party in interest

transactions prohibited by ERISA

• For possible prohibited transactions:

– Gain understanding of the transaction

– Evaluate effect on audit and financials (Consult specialist as needed)

– Adequacy of disclosures (including contingencies) and required supplemental schedules

– Evaluate management representations

• Fiduciary requirement to restore profits that the fiduciary made to participants



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Can a Loss of Tax Exempt Status Happen?

• March 2011 – Christy & Swan Profit Sharing Plan– Plan failed to keep current with changes to the tax

code

– Plan argued there was no need to keep the plan current since there were no new contributions

– Tax court recently upheld IRS decision to revoke tax deferred status of the plan

• January 2011 – Hollen dealing with adopting amendments with incorrect effective dates



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Another Loss of Tax Exempt Status

• 1981 – Tionesta Sand and Gravel

• Failure to include language requiring full vesting on any plan termination

• Repercussions of retroactive plan disqualification

– Trust income becomes taxable

– Plan sponsor contributions are disallowed

– Plan sponsor penalties for failure to withhold payroll taxes

– Participants are taxed with no rollover eligibility

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Fees and the DOL

• First 408(b)(2)

• Then Form 5500 Schedule C

• Then Quarterly Participant Reporting of Fees

• First Schedule C

• Then Question #40 (Good Faith Effort)

• 408(b)(2) Planned Rollout Originally Effective July 2011

• 5 ½ Month Deferral of 408(b)(2) Until January 1, 2012

• Quarterly Participant Fee Disclosure Rules Effective January 1, 2012

What was Planned What Actually Happened



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Can a Plan Sponsor Be Sued Over Fees?

• July 2009 – Tibble vs. Edison, International– Edison offered retail share classes as investment

options, which have higher fees than institutional investments

– Court found that Edison should have considered offering institutional shares

– Judgment subject to appeal approximately $300,000

• April 2011 – George vs. Kraft Foods– Not clear whether reliance on a consultant was

sufficient to show that the plan committee acted appropriately (e.g. no factors considered in minutes)



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So Does This Mean That Retail Plan Investments are Not Acceptable to My Plan?

• No, they are typically acceptable.

• Size matters

• Reasonable fees are based on several variables, including average account balance

• 401(k) Averages Book www.401(k)source.com

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http://www.401(k)source.com/



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SPD vs. Plan Document

• CIGNA Corporation v. Amara

• Supreme Court ruled that the terms of SPD may not be enforced if such terms are contrary to the plan document

• Message point is that the SPD and operations of the plan need to be consistent with the plan document

• Monitoring should clearly document the actions of fiduciaries vs. plan document



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A Trend Towards Disclosure

• More fee disclosure – 408(b)(2) and quarterly

• Clarity disclosure for targeted date funds

• Future projected benefits for 401(k) plans

• E-Fast2 as a benchmarking vehicle



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Enjoy the Rest of Your Day!

Mike Gouldin; Gouldin & McCarthy; [email protected]

Dave Dacey; WithumSmith+Brown; [email protected]

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mailto:[email protected]

mailto:[email protected]

Perspectives on Fiduciary Responsibility Example Evaluation of Plan Fiduciaries June 8, 2011 The following is a summary of an evaluation of the ABC Plan’s Fiduciaries for the year ended December 31, 2010, along with a basis for conclusions reached:

Name

Title

Any One of These Conditions Would Trigger a Fiduciary Relationship

Exercise Discretionary

Authority or Control Over the Plan or Its

Assets

Renders (or has Authority to Render)

Investment Advice for a Fee or Other Direct or Indirect Compensation

Has Discretionary

Authority or Responsibility in

Administering the Plan

Plan Sponsor Yes Yes, through overseeing its relationships with outside professionals.

Yes

John Jones 100% Stockholder

Yes Yes (See above) Yes

Jane Jones Board Member Yes Yes (See above) Yes Jim Jones (no relation to John)

CFO Yes, Jim hired the firm, which decides on the investments that are made.

Yes (See above) Yes

Joan Jones (also no relation)

HR Director No authority Has no involvement in this area.

Yes. Joan oversees that employee elective deferrals are made timely to the investment custodian.

Pensions are Us TPA No discretion. Has no involvement in this area.

Yes, Pensions are Us are actively involved in administering the plan.

Etc. Etc. Etc. Etc. Etc.

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Perspectives on Fiduciary Responsibility Example Evaluation of Plan Document Monitoring June 8, 2011 The following is a summary of an evaluation of the ABC Plan’s Operations, as compared to the Summary Plan Description and the Plan Document for the year ended December 31, 2010:

Plan Process Requirements Per Plan Document

Requirements Per Summary Plan

Description

Standard Processes In Place

Eligibility Timeliness of Employee Elective Deferral Contributions

Employer Matching Contributions

Etc. Etc. Etc.

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Documents

Perspectives on Fiduciary Responsibility Planning for ...€¦ · Jane Jones Board Member Yes Yes (See above) Yes Jim Jones (no relation to John) CFO Yes, Jim hired the firm, which