Dealing with ERISA Fiduciary Responsibility & Liability

Transcription

1 Qualified and Non Qualified Retirement Plans Pitfalls for the Practitioner Representing the Small Business Owner Dealing with ERISA Fiduciary Responsibility & Liability Irwin N. Rubin, Esq. 19 th Annual Spring Symposia ABA Section of Real Property, Trust & Estate Law Washington, D.C. May 1,

2 Danziger & Markhoff LLP A Full Service Tax-Oriented Law Firm Employee Benefits Trusts & Estates/ Taxation 2 Corporate

3 What Can Go Wrong I Investment is Too---[Even if Price Rises] Too Risky [Aggressive] Too Risky [Leveraged = Volatile] Too Safe [ T-Bills] Too Concentrated: (Not Diversified) 3

4 What Can Go Wrong II Prohibited Transactions [Even if Beneficial to Participants] In kind contributions [Keystone Case] Plan loan to company [high % interest] Third party mortgage loans Related party investments Late deposit of 401(k) deferrals Recent DOL regulations now require deposits by the 7 th business day 4

5 Fiduciary s Responsibilities I ERISA SEC 404a Held to higher standard of conduct _ Prudent Person : Act with care, skill, prudence and diligence _Act solely in the interest of plan participants _Diversify plan assets _Act in accordance with plan document 5

6 Fiduciary s Responsibilities II Documents signed and dated Provide information mandated by ERISA _SPD & SAR _Plan Documents Respond to Inquiries Be bonded Monitor prohibited transactions 6

7 Fiduciary s Responsibilities III Plan Bonding [ERISA Sec. 412] Anyone handling plan assets _Standard Bond = 10% of assets _Max. bond required = $500,000 _1 person plan not subject to ERISA _Small plan audit exemption (real property nonqualifying asset) Bond protects Plan, not Fiduciary _Fiduciary liability insurance = individual decision 7

8 Fiduciary s Responsibilities IV Investment Policy Statement ERISA Sec. 402b (Plan procedures) _Procedure to establish funding policy IPS = How investments & managers are: _Selected and monitored _Related to plan objectives IPS = documents trustee s prudence 8

9 Fiduciary s Responsibilities V Investment Policy Statement Targeted return Cash flow requirements Asset allocation requirements Investment restrictions Risk tolerance Time horizons Benchmarks Qualified default investment alternatives 9

10 Fiduciary Liability I ERISA Sec 409a In case of fiduciary breach: _Liable to make good any plan losses _Liable to return any profits made from the breach _Legal fees _May be removed as the fiduciary _Equitable or remedial relief by court 10

11 Fiduciary Liability II ERISA Sec. 206d(4) Fiduciary s plan benefit may be reduced _Conviction of crime involving the Plan _Civil order or settlement decree re: ERISA fiduciary violation _ Civil plaintiff _ DOL _ PCGC 11

12 Fiduciary Liability III ERISA Sec. 502(I) Fiduciary subject to DOL civil penalty of 20% of recovery _Any breach of fiduciary responsibility _Any prohibited transaction [ERISA Sec. 406) _Penalty is offset by IRS penalty under Code Sec

13 Fiduciary Liability IV Code Sec IRS penalty tax on Disqualified Person engaging in Prohibited Transaction _Excise Tax: 15% of Amount Involved _Exponential tax if multiple years _P/T must be correct [i.e., undone] _If corrected may mitigate excise tax _If not corrected 2 nd Tier Tax: 100% _IRS notifies DOL before Notice of Deficiency 13

14 Avoiding Problems I Registered investment manager _ERISA Sec 405d _Trustee prudence in manager choice Plan must authorize appointment Manager acknowledges fiduciary status in writing 14

15 Avoiding Problems II Indicia of Ownership of Assets _Within jurisdiction of federal courts Plan document requirements _No investments that are not permitted by plan document _Broad investment provisions 15

16 Avoiding Problems III Unrelated business taxable income _Margin Trading Plan assets required to be valued at least annually No closely held limited partnerships unless can prove value 16

17 Avoiding Problems IV Ask before you act _Attorney _Plan Consultant _In-house Plan Administrator _TPA: Third Party Administrator _Investment Advisor _Accountant Document, Document, Document! 17

18 Thank you 19 th Annual Spring Symposia ABA Section of Real Property, Trust & Estate Law Danziger & Markhoff LLP Irwin N. Rubin, Esq