Meals, Entertainment & Gifts
Jim Cole
Groom Law Group
(202) 861-0175
jcole@groom.com
NECA Labor Relations Conference
October 14, 2009
San Antonio, Texas
ERISA Summary
Expenses of Fiduciary Already Receiving Full Time Pay:

In the interest of participants and beneficiaries

Used to defray a reasonable plan expense

Not for the “personal account” of the fiduciary

The direct expense was properly and actually incurred
Business Entertainment from
Service Providers
 What can a third party pay for?
 Recent developments
 Applicable law
 Analysis
Prior DOL “Zero Tolerance Policy”

“Zero Tolerance Policy” – DOL
Enforcement

March, 2007 - Speech to Investment Advisors

Statements made by DOL Chief of ERISA
Enforcement

Nothing to do with the plan paying for
educational conferences for trustees

Casts doubt on prior standards regarding
business entertainment from service providers
Recent Developments

New DOL Enforcement Policy

Not everything we asked for but an
improvement from the Zero Tolerance Policy

DOL Enforcement Manual

October 8, 2008

Section 12

See attached handout
Recent Developments


DOL ERISA Audit Activity

Compare Form LM-10 / LM-30 Reporting

Regional Offices & “Ten Day Letters”

DOL Letters to Service Providers
DOL Memorandum of Understanding


EBSA & OLMS Coordination
DOL & SEC Investment Consultant
Enforcement Initiative - CAP
Not Just ERISA

18 U.S.C. 1954 – Bribery of Plan
Fiduciaries & Employees

Honest Services Act

Taft-Hartley Act
Strict Payment Prohibition
 Bribery Prohibition

Kickbacks . . .
ERISA Section 406(b)(3)
Prohibited transaction for a Fiduciary to
“receive any consideration for his own personal
account from any party dealing with such plan in
connection with a transaction involving the assets
of the plan.”
§406(b)(3) Violation
Consequences for Recipient (Trustees)

Pay to Plan under ERISA § 409 
Loss, if any, to plan from fiduciary decision
 Value of the “kickback” (disgorgement)


Pay to IRS excise tax - IRC §4975



15% of amt involved per year til corrected
Removal as fiduciary; injunctions
Pay 20% of recovery if DOL involved
(§ 502(l))
§406(b)(3) Violation
Consequences for Payor (Provider)

If payor is not a Fiduciary 


If payor is a Fiduciary 


Potential non-fiduciary liability. Saloman Bros.
Co-fiduciary liability under §405
Impact of DOL challenge on current business
relationships and future opportunities
§406(b)(3) Elements:
“For His Own Personal Account”
An Argument: if payment related to plan
business and plan assets could have been
used, argue no violation because payment
benefits plan and not fiduciary personally.

DOL Adv. Ops. 97-15, 97-19
Service Provider Gratuities
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 Gratuities
What Might Be a Technical Violation of ERISA § 406(b)(3)?
Golf?
Sporting & Theatre Tickets?
Occasional Gifts?
Raffles?
Trinkets?
New DOL Enforcement Policy


Investigators instructed to review:
 Meals, gifts, entertainment associated with
educational conferences;
 Whether plan fiduciary maintains a reasonable
written policy and policy is followed.
DOL will treat as “insubstantial” –
 Gifts, meals, and other gratuities of less than $250
from one source annually;
 “reasonable” expenses reimbursed in connection
with educational conferences.
New DOL Enforcement Policy:
Educational Conferences

Expenses associated with educational conferences are
reasonable if plan fiduciary determines in advance, in
writing:




Plan could prudently pay;
Expenses consistent with plan policy;
Conference had a reasonable relationship to attendees’ plan
duties; and
Expenses were reasonable in light of benefits and unlikely to
compromise attendees ability to carry out plan duties.
New DOL Enforcement Policy:
Educational Conferences

Some Confusion
When are educational expenses included in $250?
 If Plan payment and reimbursement actually
required?
 Is conference-related entertainment included?


Educational Conferences: Special Requirements
Plan policy
 Advance determination/approval

New DOL Enforcement Policy

Positives





Covers all gratuities (other than cash)
Relatives included
No per event cap
Suggests that entertainment not a "per se" violation
Challenges



Distinguished educational conferences but not business meals
No real guidance to investigators for dealing with $250+
gratuities
Aggregation of affiliates and individual employee payments
from source
Meals, Gifts and Entertainment:
Form 5500, Schedule C

Direct and indirect compensation may include some
compensation received by employees of plan sponsors and
service providers.

Reportable – “other” compensation, including non-monetary
compensation, received by a plan sponsor employee or service
provider employee from a third party.
 Meals and entertainment?

Not reportable – compensation, e.g. salary, received by a plan
sponsor employee or service provider employee, from his or her
employer.
LMRDA / Landrum-Griffin Act
Union






Officer
Imposes fiduciary duties on union officers and
employees
Solely for the benefit of the union
In accordance with the constitution, bylaws &
resolutions of the governing bodies
Do not act as adverse party
Account for profit
Form LM-10 & LM-30 reporting
Form LM-30’s & LM-10’s: Where ERISA and
Labor Law (LMRDA) Collide

LM-30’s = union officers & union employees

LM-10’s = anyone who employs



Employers of union members
Service Providers
Employee Benefit Trusts – Not for 2007

Final LM-30 Regulations & FAQs Published

Filing a Form LM-30 or Form LM-10 does not
necessarily mean a violation of ERISA, the TaftHartley Act, or § 1954
Form LM-30’s & LM-10’s: Where ERISA and
Labor Law (LMRDA) Collide
What Must PLANS File?

Plans do not have to file LM-10’s until additional
LM-10 guidance is issued

Additional LM-10 guidance is not expected for at
least a month and probably longer

LM-10 Filers may continue to rely on the old FAQs
& not the new LM-30 regulations
Form LM-30’s & LM-10’s: Where ERISA and
Labor Law (LMRDA) Collide
What Must Union Trustees File?

LM-30 filers may use the old form for their
2009 filing.

If the new Form LM-30 is used, Union
officers & employees must file a Form LM-30
for expenses they are reimbursed by the
plan if another exception (e.g., the $250 de
minimis) does not apply.
Examples of Form LM-10, Non-Enforcement Policy &
Form 5500 Inconsistencies
Rule
LM-10
DOL Non-Enforcement
Form 5500
Deminimis
$250 Annual
$249.99 Annual
$100/Annual
$50/Occurrence
Tax Deductible
and Excludable
Per Occurrence
Deminimis
None for LM-10
(but note under
$20 excluded for
LM-30)
None
Items under $10
excluded
Event Exclusion
Widely attended
gatherings
Educational
Conferences
None (but SP’s
may allocate
among plan
clients)
Policy Required
No
Yes
Silent (but see
§408(b)(2))
Fiduciary Violations Involving Gifts
and Gratuities
12. 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 Involving Gifts
and Gratuities
Further, 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 Involving Gifts
and Gratuities
(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 & Gifts
Jim Cole
Groom Law Group
(202) 861-0175
jcole@groom.com
NECA Labor Relations Conference
October 14, 2009
San Antonio, Texas