Meals, Entertainment & GiftsMeals, Entertainment & Gifts

Jim ColeJim Cole

Groom Law GroupGroom Law Group

(202) 861-0175(202) 861-0175jcole@groom.com

NECA Labor Relations ConferenceNECA Labor Relations Conference

October 14, 2009October 14, 2009

San Antonio, TexasSan Antonio, Texas

ERISA SummaryERISA Summary

In the interest of participants and beneficiariesIn the interest of participants and beneficiaries

Used to defray a Used to defray a reasonablereasonable plan expense plan expense

Not for the Not for the ““personal accountpersonal account”” of the fiduciary of the fiduciary

The The directdirect expense was expense was properlyproperly andand actuallyactually incurred incurred

The expense is not otherwise reimbursed (no double The expense is not otherwise reimbursed (no double dipping).dipping).

Expenses of Fiduciary Already Receiving Full Time Pay:

Business Entertainment Business Entertainment from Service Providersfrom Service Providers

What can a third party pay for?What can a third party pay for?

Recent developmentsRecent developments

Applicable lawApplicable law

AnalysisAnalysis

Prior DOL “Zero Tolerance Policy”Prior DOL “Zero Tolerance Policy” ““Zero Tolerance Policy” – DOL Zero Tolerance Policy” – DOL

EnforcementEnforcement March, 2007 - Speech to Investment March, 2007 - Speech to Investment

AdvisorsAdvisors Statements made by DOL Chief of Statements made by DOL Chief of

ERISA EnforcementERISA Enforcement Nothing to do with the plan paying for Nothing to do with the plan paying for

educational conferences for trusteeseducational conferences for trustees Casts doubt on prior standards Casts doubt on prior standards

regarding business entertainment from regarding business entertainment from service providersservice providers

Recent DevelopmentsRecent Developments

New DOL Enforcement PolicyNew DOL Enforcement Policy Not everything we asked for but an Not everything we asked for but an

improvement from the Zero improvement from the Zero Tolerance PolicyTolerance Policy

DOL Enforcement ManualDOL Enforcement Manual October 8, 2008October 8, 2008 Section 12Section 12 See attached handoutSee attached handout

Recent DevelopmentsRecent Developments DOL ERISA Audit ActivityDOL ERISA Audit Activity

Compare Form LM-10 / LM-30 Compare Form LM-10 / LM-30 ReportingReporting

Regional Offices & “Ten Day Letters”Regional Offices & “Ten Day Letters” DOL Letters to Service ProvidersDOL Letters to Service Providers

DOL Memorandum of UnderstandingDOL Memorandum of Understanding EBSA & OLMS CoordinationEBSA & OLMS Coordination

DOL & SEC Investment Consultant DOL & SEC Investment Consultant Enforcement Initiative - CAPEnforcement Initiative - CAP

Not Just ERISANot Just ERISA

18 U.S.C. 1954 – Bribery of 18 U.S.C. 1954 – Bribery of Plan Fiduciaries & EmployeesPlan Fiduciaries & Employees

Honest Services ActHonest Services Act

Taft-Hartley ActTaft-Hartley Act Strict Payment ProhibitionStrict Payment Prohibition Bribery ProhibitionBribery Prohibition

Kickbacks . . .Kickbacks . . .

Prohibited transaction for a Prohibited transaction for a FiduciaryFiduciary to “receive to “receive any considerationany consideration for his for his own personal accountown personal account from any from any party dealing with such plan in connection in connection withwith a transaction involving the a transaction involving the assets of the plan.”assets of the plan.”

ERISA Section 406(b)(3)

§406(b)(3) Violation §406(b)(3) Violation Consequences for Recipient Consequences for Recipient

(Trustees) (Trustees) Pay to Plan under ERISA § 409 Pay to Plan under ERISA § 409

Loss, if any, to plan from fiduciary decisionLoss, if any, to plan from fiduciary decision Value of the “kickback” (disgorgement)Value of the “kickback” (disgorgement)

Pay to IRS excise tax - IRC §4975Pay to IRS excise tax - IRC §4975 15% of amt involved per year til corrected15% of amt involved per year til corrected

Removal as fiduciary; injunctionsRemoval as fiduciary; injunctions Pay 20% of recovery if DOL involved Pay 20% of recovery if DOL involved

(§ 502(l))(§ 502(l))

§406(b)(3) Violation §406(b)(3) Violation Consequences for Payor (Provider)Consequences for Payor (Provider) If payor is not a Fiduciary If payor is not a Fiduciary

Potential non-fiduciary liability. Potential non-fiduciary liability. Saloman BrosSaloman Bros..

If payor is a Fiduciary If payor is a Fiduciary Co-fiduciary liability under §405 Co-fiduciary liability under §405

Impact of DOL challenge on current Impact of DOL challenge on current business relationships and future business relationships and future opportunitiesopportunities

§406(b)(3) Elements: §406(b)(3) Elements: “For His Own Personal Account”“For His Own Personal Account”

An ArgumentAn Argument: if payment related to plan : if payment related to plan business and plan assets could have been business and plan assets could have been used, argue no violation because used, argue no violation because

payment payment benefits plan and not fiduciary benefits plan and not fiduciary

personally. personally.

DOL Adv. Ops. 97-15, 97-19DOL Adv. Ops. 97-15, 97-19

Service Provider Service Provider GratuitiesGratuities

What Might Be a Technical Violation of ERISA § 406(b)(3)?

Meetings with Meals?

Gifts to Charities?

Educational Conferences?

Party or Reception for all Clients?

Service Provider Service Provider GratuitiesGratuities

What Might Be a Technical Violation of ERISA § 406(b)(3)?

Golf?

Sporting & Theatre Tickets?

Occasional Gifts?

Raffles?

Trinkets?

New DOL Enforcement New DOL Enforcement PolicyPolicy

Investigators instructed to review:Investigators instructed to review: Meals, gifts, entertainment associated with Meals, gifts, entertainment associated with

educational conferences;educational conferences; Whether plan fiduciary maintains a Whether plan fiduciary maintains a

reasonable written policy and policy is reasonable written policy and policy is followed.followed.

DOL will treat as “insubstantial” –DOL will treat as “insubstantial” – Gifts, meals, and other gratuities of less than Gifts, meals, and other gratuities of less than

$250 from one source annually;$250 from one source annually; ““reasonable” expenses reimbursed in reasonable” expenses reimbursed in

connection with educational conferences.connection with educational conferences.

New DOL Enforcement Policy:New DOL Enforcement Policy:Educational ConferencesEducational Conferences

Expenses associated with educational Expenses associated with educational conferences are reasonable if plan fiduciary conferences are reasonable if plan fiduciary determines in advance, in writing:determines in advance, in writing: Plan could prudently pay;Plan could prudently pay; Expenses consistent with plan policy;Expenses consistent with plan policy; Conference had a reasonable relationship to Conference had a reasonable relationship to

attendees’ plan duties; andattendees’ plan duties; and Expenses were reasonable in light of benefits and Expenses were reasonable in light of benefits and

unlikely to compromise attendees ability to carry unlikely to compromise attendees ability to carry out plan duties.out plan duties.

New DOL Enforcement Policy:New DOL Enforcement Policy:Educational ConferencesEducational Conferences

Some ConfusionSome Confusion When are educational expenses included in When are educational expenses included in

$250?$250? If Plan payment and reimbursement actually If Plan payment and reimbursement actually

required?required? Is conference-related entertainment included?Is conference-related entertainment included?

Educational Conferences: Special Educational Conferences: Special RequirementsRequirements Plan policy Plan policy Advance determination/approvalAdvance determination/approval

New DOL Enforcement New DOL Enforcement PolicyPolicy

PositivesPositives Covers all gratuities (other than cash)Covers all gratuities (other than cash) Relatives includedRelatives included No per event cap No per event cap Suggests that entertainment not a "per se" violationSuggests that entertainment not a "per se" violation

ChallengesChallenges Distinguished educational conferences but not Distinguished educational conferences but not

business mealsbusiness meals No real guidance to investigators for dealing with No real guidance to investigators for dealing with

$250+ gratuities$250+ gratuities Aggregation of affiliates and individual employee Aggregation of affiliates and individual employee

payments from sourcepayments from source

Meals, Gifts and Entertainment:Meals, Gifts and Entertainment:Form 5500, Schedule CForm 5500, Schedule C

Direct and indirect compensation may include Direct and indirect compensation may include some compensation received by some compensation received by employeesemployees of plan of plan sponsors and service providers.sponsors and service providers.

ReportableReportable – “other” compensation, including non- – “other” compensation, including non-monetary compensation, received by a plan monetary compensation, received by a plan sponsor employee or service provider employee sponsor employee or service provider employee from a third party.from a third party. Meals and entertainment?Meals and entertainment?

Not reportableNot reportable – compensation, e.g. salary, – compensation, e.g. salary, received by a plan sponsor employee or service received by a plan sponsor employee or service provider employee, from his or her employer.provider employee, from his or her employer.

LMRDA / Landrum-LMRDA / Landrum-Griffin ActGriffin Act

UnionUnion OfficerOfficer Imposes fiduciary duties on union officers and Imposes fiduciary duties on union officers and

employeesemployees Solely for the benefit of the unionSolely for the benefit of the union In accordance with the constitution, bylaws & In accordance with the constitution, bylaws &

resolutions of the governing bodiesresolutions of the governing bodies Do not act as adverse partyDo not act as adverse party Account for profit Account for profit Form LM-10 & LM-30 reportingForm LM-10 & LM-30 reporting

Form LM-30’s & LM-10’s: Where Form LM-30’s & LM-10’s: Where ERISA and Labor Law (LMRDA) ERISA and Labor Law (LMRDA)

CollideCollide LM-30’s = union officers & union employeesLM-30’s = union officers & union employees

LM-10’s = anyone who employsLM-10’s = anyone who employs Employers of union membersEmployers of union members Service ProvidersService Providers Employee Benefit Trusts – Not for 2007Employee Benefit Trusts – Not for 2007

Final LM-30 Regulations & FAQs PublishedFinal LM-30 Regulations & FAQs Published

Filing a Form LM-30 or Form LM-10 does not Filing a Form LM-30 or Form LM-10 does not necessarilynecessarily mean a violation of ERISA, the Taft- mean a violation of ERISA, the Taft-Hartley Act, or Hartley Act, or § 1954§ 1954

Form LM-30’s & LM-10’s: Where Form LM-30’s & LM-10’s: Where ERISA and Labor Law (LMRDA) ERISA and Labor Law (LMRDA)

CollideCollideWhat Must PLANS FileWhat Must PLANS File??

Plans Plans do notdo not have to file LM-10’s until additional have to file LM-10’s until additional LM-10 guidance is issuedLM-10 guidance is issued

Additional LM-10 guidance is not expected for at Additional LM-10 guidance is not expected for at least a month and probably longerleast a month and probably longer

LM-10 Filers may continue to rely on the old FAQs LM-10 Filers may continue to rely on the old FAQs & not the new LM-30 regulations& not the new LM-30 regulations

Form LM-30’s & LM-10’s: Where Form LM-30’s & LM-10’s: Where ERISA and Labor Law (LMRDA) ERISA and Labor Law (LMRDA)

CollideCollideWhat Must Union Trustees FileWhat Must Union Trustees File??

LM-30 filers may use the old form for their LM-30 filers may use the old form for their 2009 filing. 2009 filing.

If the new Form LM-30 is used, Union If the new Form LM-30 is used, Union officers & employees officers & employees mustmust file a Form LM-30 file a Form LM-30 for expenses they are reimbursed by the for expenses they are reimbursed by the plan if another exception (e.g., the $250 de plan if another exception (e.g., the $250 de minimis) does not apply.minimis) does not apply.

Examples of Form LM-10, Non-Enforcement Examples of Form LM-10, Non-Enforcement Policy & Policy &

Form 5500 InconsistenciesForm 5500 Inconsistencies

DeminimisDeminimis $250 Annual$250 Annual $249.99 $249.99 AnnualAnnual

$100/Annual$100/Annual

$50/$50/Occurrence Occurrence

Tax Tax Deductible Deductible

and and ExcludableExcludable

Per Occurrence Per Occurrence DeminimisDeminimis

None for LM-None for LM-10 (but note 10 (but note under $20 under $20

excluded for excluded for LM-30)LM-30)

NoneNone Items under Items under $10 excluded$10 excluded

Event ExclusionEvent ExclusionWidely Widely

attended attended gatheringsgatherings

Educational Educational ConferencesConferences

None (but None (but SP’s may SP’s may allocate allocate

among plan among plan clients)clients)

Policy RequiredPolicy Required NoNo YesYes Silent (but see Silent (but see §408(b)(2))§408(b)(2))

Rule LM-10 DOL Non-Enforcement Form 5500

Fiduciary Violations Fiduciary Violations Involving Gifts and Involving Gifts and

GratuitiesGratuities12. Fiduciary Violations Involving Gifts and Gratuities.

Investigations may disclose possible fiduciary violations involving a plan fiduciary’s acceptance, from a party dealing with the plan, of consideration such as meals, gifts, entertainment, or expenses associated with educational conferences. In such cases, the Investigator/Auditor should determine whether the facts support an allegation that the receipt of gifts, gratuities, or other consideration were for the fiduciary’s personal account and received in connection with a transaction or transactions involving the assets of the plan as required for a violation of ERISA §406(b)(3). The Investigator/Auditor should also determine whether the fiduciary or the plan maintained a reasonable written policy or plan provision governing the receipt of items or services from parties dealing with the plan and whether the fiduciary adhered to that policy.

Fiduciary Violations Fiduciary Violations Involving Gifts and Involving Gifts and

GratuitiesGratuitiesFurther, for enforcement purposes only, the

Investigator/Auditor generally should adhere to the following guidelines:

(1) The Investigator/Auditor should treat as insubstantial, and not as an apparent violation of ERISA § 406(b)(3), the receipt by a fiduciary (including his or her relatives) of the following items or services from any one individual or entity (including any employee, affiliate, or other related party) as long as their aggregate annual value is less than $250 and their receipt does not violate any plan policy or provision: (a) gifts, gratuities, meals, entertainment, or other consideration (other than cash or cash equivalents) and (b) reimbursement of expenses associated with educational conferences.

Fiduciary Violations Fiduciary Violations Involving Gifts and Involving Gifts and

GratuitiesGratuities(2) The Investigator/Auditor should not treat the

reimbursement to a plan of expenses associated with a plan representative’s attendance at an educational conference as a violation of ERISA § 406(b)(3) if a plan fiduciary reasonably determined, in advance and without regard to whether such expenses will be reimbursed, that (a) the plan’s payment of educational expenses in the first instance was prudent, (b) the expenses were consistent with a written plan policy or provision designed to prevent abuse, (c) the conference had a reasonable relationship to the duties of the attending plan representative, and (d) the expenses for attendance were reasonable in light of the benefits afforded to the plan by such attendance and unlikely to compromise the plan representative’s ability to carry out his or her duties faithfully in accordance with ERISA. The fiduciary’s determination should be in writing.

Meals, Entertainment & GiftsMeals, Entertainment & Gifts

Jim ColeJim Cole

Groom Law GroupGroom Law Group

(202) 861-0175(202) 861-0175jcole@groom.com

NECA Labor Relations ConferenceNECA Labor Relations Conference

October 14, 2009October 14, 2009

San Antonio, TexasSan Antonio, Texas