Perspectives on Fiduciary Responsibility

Transcription

1 Perspectives on Fiduciary Responsibility Planning for Recent Developments and Best Practice Considerations Michael Gouldin, Gouldin & McCarthy Dave Dacey, WithumSmith+Brown June 8, 2011

2 Today s Disclaimer The Click information to edit Master presented text styles in this webinar represent Second our level perspectives, is not necessarily all inclusive, Third does level 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. 1 Understanding Respective Roles Auditors Click audit, to edit identify Master findings text styles 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 2 Who are Considered Fiduciaries? Exercise Click any to edit discretionary Master text authority styles or control over: Managing Third the level 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 3 1

3 Click to edit Master text styles Let s Look at an Example Evaluation! 4 Dealing Click to With edit Plan Master Deficiencies title style Click to edit Master text styles 5 Auditing Considerations Click to Plan edit Deficiencies Master title style Click to edit Master text styles Disclosure and / or Auditor Report Prohibited party-in-interest transaction disclosure Management Comment Requirement Breach of fiduciary responsibility Tax status for potential plan disqualification disclosure Prohibited party-in-interest transactions Supplemental schedules Loan or leases in default Loans or fixed income obligations in default Leases in default Untimely deposits Non-exempt prohibited transactions 6 2

4 Auditing Prohibited Transactions Be aware of the possibility of party in interest transactions Click to prohibited edit Master by ERISA text styles For possible Second prohibited level 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 7 Can a Loss of Tax Click Exempt to edit Status Master Happen? title style March Click 2011 to edit Christy Master & Swan text styles Profit Sharing Plan Plan failed Third to level 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 8 Another Loss of Tax Exempt Status 1981 Click Tionesta to edit Sand Master and text Gravel styles Failure Second to include level language requiring full vesting on any plan Third termination level 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 9 3

5 Fees and the DOL Click What was to Planned edit Master text styles First 408(b)(2) Then Form 5500 Third Schedule level C Then Quarterly Participant Reporting of Fees What Actually Happened First Schedule C Then Question #40 (Good Faith Effort) 408(b)(2) Planned Rollout Originally Effective July ½ Month Deferral of 408(b)(2) Until January 1, 2012 Quarterly Participant Fee Disclosure Rules Effective January 1, Can a Plan Sponsor Click Be to Sued edit Over Master Fees? title style July 2009 Click to Tibble edit Master vs. Edison, text International styles Edison offered retail share classes as investment options, Second which level 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) 11 So Does This Mean That Retail Plan Investments are Not Acceptable to My Plan? No, they Click are to edit typically Master acceptable. text styles Size matters Reasonable fees are based on several variables, including average account balance 401(k) Averages Book

6 SPD vs. Plan Document CIGNA Click Corporation to edit Master v. Amara text styles Supreme Second Court level ruled that the terms of SPD may not be Third enforced level 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 13 A Trend Towards Disclosure More Click fee to disclosure edit Master 408(b)(2) text styles and quarterly Clarity Second disclosure levelfor targeted date funds Future projected benefits for 401(k) plans E-Fast2 as a benchmarking vehicle 14 Enjoy the Rest of Your Day! Mike Gouldin; Click to edit Gouldin Master & McCarthy; text styles mike@gouldinmccarthy.com Dave Dacey; WithumSmith+Brown; ddacey@withum.com 15 5

7 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: Any One of These Conditions Would Trigger a Fiduciary Relationship Renders (or has Name Title Exercise Discretionary Authority or Control Over the Plan or Its Assets 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 Yes its relationships with outside professionals. John Jones 100% Stockholder Yes Yes (See above) Yes Jane Jones Board Member Yes Yes (See above) Yes Jim Jones (no CFO Yes (See above) Yes relation to John) Joan Jones (also no relation) Yes, Jim hired the firm, which decides on the investments that are made. HR Director No authority Has no involvement in this area. Pensions are Us TPA No discretion. Has no involvement in this area. Etc. Etc. Etc. Etc. Etc. Yes. Joan oversees that employee elective deferrals are made timely to the investment custodian. Yes, Pensions are Us are actively involved in administering the plan. 6

8 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 Eligibility Requirements Per Plan Document Requirements Per Summary Plan Description Standard Processes In Place Timeliness of Employee Elective Deferral Contributions Employer Matching Contributions Etc. Etc. Etc. 7