It's important to maintain strong relationships with employee benefit advisers who provide professional services at reasonable fees. However, employers must periodically question why they maintain certain relationships, particularly if fees appear to be higher than usual and/or service has declined. Sometimes a relationship is maintained with a vendor due to a long-term friendship. Other times it's maintained due to the influence of a parent corporation or for other business reasons. In all circumstances, employers should periodically evaluate vendors, fees and services, and ensure that no undue influences exist. For this reason, many employers should consider establishing a formal ERISA fiduciary gift policy.
In the union environment, establishing gift policies and reporting gifts have existed for many years. Under the Labor Management Reporting and Disclosure Act of 1959, union officers, employees and representatives are required to file a Form LM-30, Labor Organization Officer and Employee Report, disclosing certain payments received from parties dealing with the union or an affiliated employee benefit plan. Employers, including service providers to Taft-Hartley Plans, must also file a Form LM-10, Employer Report, disclosing any items of value given to a labor organization, union official, employee or labor relations consultant.
In 2005, DOL announced a new enforcement initiative for LMRDA reporting. Section 406(b)(3) of ERISA prohibits a fiduciary of an employee benefit plan from receiving any consideration for their own personal account from any party dealing with a plan in connection with a transaction involving assets of the plan.
In general, any payment or loan, direct or indirect, of money or other items of value, including reimbursed expenses, given to any union, union official, agent or employer is reportable on LM-30 or LM-10 unless an exception applies.
In addition to the filing requirements for unions, DOL announced several years ago a consultant adviser program. This program was intended to address whether plans' service providers, particularly investment advisers, have conflicts of interest that could affect the objectivity of their advice to retirement plan clients. The program is focused on the receipt of undisclosed compensation by investment advisers, but also considers the improper selection or monitoring of consultants and advisers. Now that plan fiduciaries are responsible to disclose fees to employers under ERISA Section 408(b)(2), employee benefits practitioners anticipate that greater scrutiny will be given to fees.
Setting up a gift policy
Most employers should begin by reviewing vendors and fees to ensure that no undue influence is being exerted. Where influence appears to be exerted on a regular basis, investigation may be required. Even without suspecting any wrongdoing, employers will benefit from establishing a formal ERISA fiduciary gift policy. A typical gift policy should:
* Establish a basic rule that "plan representatives" (i.e., all individuals associated with the decision-making process for employee benefit programs) may not, directly or indirectly, solicit or accept gifts.
* Identify that a gift is essentially anything of monetary value, including gratuities, discounts, entertainment, hospitality, training, transportation, meals and lodging.
* Preclude gifts from "prohibited sources," including any person who is seeking action, approval or selection as a vendor to an employee benefit plan by the plan representative.
* Establish gift exclusions, whereby a plan representative may accept a gift, even if it is from a prohibited source or given because of a plan representative's official position. Common gift exceptions under a fiduciary gift policies will include: gifts of $250 or less in a calendar year, gifts based on personal relationship (such as a long-term friendship), discounts and similar benefits, awards and honorary degrees, widely attended gatherings and certain social invitations.
No employer wishes to impose additional recordkeeping responsibilities on employees. Nevertheless, the establishment of a fiduciary gift policy should be considered to ensure proper vendor selection and reasonable fees for services. Employers may be surprised that, when vendor disclosures for section 401(k) plans are issued, their favorite golf buddy has received significant payments for a retirement plan in which they have had little involvement.
Contributing Editor Frank Palmieri, CPA, JD, LL.M (Taxation), is a partner with the law firm of Palmieri & Eisenberg.
