DOL Speaks 2009
Benefits Conference
Overview
Michael L. Schenk, Esq.
Michael_Schenk@WellsFargoIS.com
704-556-2536
Wells Fargo Insurance Services Confidential. © 2006 Wells Fargo Insurance Services. All rights reserved.
DOL Speaks 2009 Benefits Conference Overview
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MAJOR TOPICS OF DISCUSSION
Phyllis Borzi Comments on EBSA
Legislative Agenda
Fee Disclosure
Form 5500 and EFAST2
DOL Correction – VFCP and DFVC
DOL Investigations
Investment Advice
403(b)s from Title I Perspective
ERISA Litigation
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DOL Speaks 2009 Benefits Conference Overview
Phyllis Borzi Comments on EBSA
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Michael Davis – JP Morgan – Asst. Secretary – investment background
Wholesale shift to employees bearing investment risks - looking at
reviewing much of the regulatory field
Enforcement (Solis “new sheriff in town”) – Phyllis’ “reminder” – there is a
sheriff in town
Civil and Criminal Penalties
– $1.2 billion in monetary results – 70% of 3500 events EBSA achieving
correction of fiduciary issues. 2008 litigation in 91 cases.
– Criminal – most under US attorney for jurisdiction – 2008 closed 212
investigations – 101 individuals indicted.
– Michael Vick – took 401(k) money to pay some of his legal fees – getting
back $250,000.
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DOL Speaks 2009 Benefits Conference Overview
Phyllis Borzi Comments on EBSA – Cont’d
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Delinquent employer contributions – national priority in 2010 FY
New priority – contributory plan criminal project – false 5500 forms and
contributions not actually made as represented
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MEWA enforcement – either not good in risk management, or crooks
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ESOPs – valuation issues, ESOP transactions (ROBS?)
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CAP – Consultant/Advisor Project – improper undisclosed compensation by
pension consultants and other investment advisors – using fiduciary status
to increase compensation, to include consultants that advise all types of
plans, including disability and life insurance plans.
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DOL Speaks 2009 Benefits Conference Overview
Phyllis Borzi Comments on EBSA – Cont’d
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Investment advice – needs to be affordable and unbiased
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1/21/09 release criticized as going too far
taking a fresh look and working to put more inline with PPA provisions
11/18/09 delayed effective date
will likely withdraw regs in their entirety and recompose and repropose with
fairly short comment period – hoping before 11/18/09 – takes time
Concerned about reports that DOL Sun America opinion and computer
models being interpreted very broadly – limited to facts and circumstances
and cannot be relied upon – she could not recall specific examples
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DOL Speaks 2009 Benefits Conference Overview
Phyllis Borzi Comments on EBSA – Cont’d
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Fees and expenses
– Fees need to be transparent
– Proposed fee regulations – are in process of being finalized – 408(b)(2)
and disclosures to participants coming first – moving rapidly
– Go beyond just plans looking to comply with 404(c) - need info to make
intelligent decisions – participants need timely and useful information
– Phyllis likes simplicity and accessibility – need full disclosure too
– “Simple, understandable, accurate and useful”
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DOL Speaks 2009 Benefits Conference Overview
Phyllis Borzi Comments on EBSA – Cont’d
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Participant contributions safe harbors
– Met if deposited within 7 business days
– Final regs coming
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Target date funds
– Different agencies with different jurisdictions
– Improve ability of participants to understand and evaluate what these
options are – big issues: whether participant can understand how the funds
operate (e.g., What is the target date?)
– Perhaps end of year with indication of EBSA’s intentions
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DOL Speaks 2009 Benefits Conference Overview
Phyllis Borzi Comments on EBSA – Cont’d
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Annuity Income
– Concern with shifts to DC and lump sum distributions
– Longevity concern – participants are not able to manage longevity risk
– Looking at request for info on what’s going on in marketplace and
suggestions on how EBSA might encourage selecting annuities
– Key question: how to educate participants of importance of lifetime income
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Health initiatives – GINA proposed regs soon; Mental health parity soon
Expand ERISA Coverage? Voluntary 403(b)s? Severance Plans?
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DOL Speaks 2009 Benefits Conference Overview
Phyllis Borzi Comments on EBSA – Cont’d
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Self-correction for Title I issues – Phyllis had experience with this – if
problems, fix it, whether using voluntary correction program or not – she
understands desire to have expansion of formal program
Who is covered under top hat plans pursuant to one-time filings – may
consider whether that needs to be looked at
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DOL Speaks 2009 Benefits Conference Overview
Legislative Agenda
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Not much noteworthy
Health Reform – Major issue is what it costs and how to pay for it – noted
that PPA’s expected cost was $23 billion, which seemed very high at the
time
– FSAs down to $2,000
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Fee Disclosures – High priority for Chairman George Miller (House
Education and Labor Committee)
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DOL Speaks 2009 Benefits Conference Overview
Fee Disclosure
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To Fiduciaries
– Potential changes leaning towards unbundling so fiduciaries understand
and can negotiate better
– Perhaps some focus on general “per participant” fees
– Holding pattern on regulations and legislation
– Disclosure already perhaps getting better from financial intermediaries –
perhaps due to efforts of fee audit vendors?
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To Participants
– Requirements going under 404
– DOL has tools– see
http://www.dol.gov/ebsa/publications/401k_employee.html
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DOL Speaks 2009 Benefits Conference Overview
Form 5500 – EFAST2 Transitions
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2009 Short Plan Year Filers – automatic 90-day extension to after EFAST 2
available to file electronically
5500 Amendments Prior Years – must file on EFAST2
DFVC Filings – After EFAST2 is live, must file electronically
PY 2008 Filings for Non-Calendar Years
– file in 2010 under EFAST2 OR
• EFAST through 6/30/10
• Paper through 10/15/10
– If no audit done by 10/15/09 and filing amended return in 2010, paper is still
OK
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DOL Speaks 2009 Benefits Conference Overview
Form 5500 – EFAST2
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Two Methods
– IFILE
– 3rd Party Vendor
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Must keep manually-signed copy on file
Generally not possible to “submit” filing until passes computer “check”
– It appears both IFILE and 3rd Party Vendor systems will do the check
– No longer possible to get the 30 days + 30 days letters from DOL
– Still confusing on whether plan is considered “filed” when submitted without
a plan audit via PDF attachment – GET AUDITS FAST!!!
– Perhaps “game” the system by attaching some PDF, even though not a plan
audit, just so you can get by the system and be deemed to be filed
– There’s still a possible 45-day correction letter – so if this is not OK, it is not
clear when the 45-day correction letter might come into play
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AFTER PRESENTATION PREPARED, DOL RELEASED Q&A – VERY
HELPFUL – SEE http://www.dol.gov/ebsa/faqs/faq-EFAST2.html
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DOL Speaks 2009 Benefits Conference Overview
Form 5500 – EFAST2 – Cont’d
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5500-SF
– Cannot use if there’s any real estate, even if bank-trusteed
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5500-EZ
– Not subject to DOL
– Can use SF or paper EZ
– Not clear if SF will go on the Web in this situation (EZ will not)
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DOL Speaks 2009 Benefits Conference Overview
Form 5500 – EFAST2 – Cont’d
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New Schedule C
– ID service providers who received $5,000+ in comp (direct & indirect)
– Includes new codes describing services & types of compensation
– Report total direct comp paid by plan separately from total indirect comp
received by provider
– Prior rule requiring plan to identify only top “40” highest paid service
providers is eliminated.
– For “Key” service providers, must also identify persons from whom
provider received $1,000 or more in indirect compensation
– Non-monetary compensation (gifts, trips, meals, etc.) included, subject
to de minimis exception
– Alternative Reporting Option for “Eligible Indirect Compensation”
• Only certain types of indirect compensation eligible
• Disclosure requirements
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DOL Speaks 2009 Benefits Conference Overview
Form 5500 – EFAST2 – Cont’d
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New Compliance and Technical Questions
– Whether plan paid benefits when due
– Whether plan complied with blackout notice regulations
– New feature codes for plans with automatic enrollment or default investment
options
– Standard supplemental schedule for Schedule H reporting delinquent
participant contributions
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DOL Speaks 2009 Benefits Conference Overview
Investigations
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Consultant/Advisor Project
Contributory Plan Criminal Project
– Applied to both retirement and health & welfare plans
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Referrals by anonymous complaint – DOL can investigate
Some civil investigations against service providers
Note distinction between a “settlement agreement” (502(l) penalty is
mandatory) vs. “closing letter” (no 502(l) penalty)
Interview – 1 individual at a time (but good idea to have lawyer present)
Fidelity Bonds
– Cannot have a deductible
– Must include a “discovery period” of at least 1 year after termination or
cancellation of the bond
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DOL Speaks 2009 Benefits Conference Overview
Investigations
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Consultant/Advisor Project
Contributory Plan Criminal Project
– Applied to both retirement and health & welfare plans
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Referrals by anonymous complaint – DOL can investigate
Some civil investigations against service providers
Note distinction between a “settlement agreement” (502(l) penalty is
mandatory) vs. “closing letter” (no 502(l) penalty)
Interview – 1 individual at a time (but good idea to have lawyer present)
Fidelity Bonds
– Cannot have a deductible
– Must include a “discovery period” of at least 1 year after termination or
cancellation of the bond
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DOL Speaks 2009 Benefits Conference Overview
Investment Advice
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Nothing much worth mentioning – still working through level fee and
computer model rules
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DOL Speaks 2009 Benefits Conference Overview
403(b)s
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Emphasis on 5500, audits and FAB 2009-02
– Frozen contracts before 2009 are disregarded for 5500 purposes, but not
necessarily other purposes
• E.g., there’s still a plan for 5500 purposes
› File 5500-SF and list “0” participants
• Fiduciary rules still apply for plans otherwise subject to Title I
– FAB 2009-02 principles do apply beyond 2009 reporting year
– Hang-up on FAB requirement that “ All rights . . . legally enforceable against
the insurer by the individual owner . . . without involvement by the employer”
• E.g., no approval of employer for hardships or loans
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DOL Speaks 2009 Benefits Conference Overview
403(b)s – Cont’d
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ERISA Safe Harbor
– Employer can limit number of providers who may approach employees –
how many is that?
• 1 is probably too few, but possible OK if vendor approaches the
employer first, not if the employer initiates review of vendors
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Plan Termination
– Still uncertain territory on whether failure to be able to terminate for IRS and
reg purposes is fatal to termination for Title I purposes
– DOL waiting for IRS to resolve their plan termination issues first
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Title I 403(b) with Non-Title I 403(b)
– Seems to be OK if they are not tied together (e.g., match into Title I plan
based on non-Title I plan deferrals probably not OK)
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403(b)s and 404(c)
– Sadly, not addressed
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DOL Speaks 2009 Benefits Conference Overview
Litigation
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Definite distinction between point of view of defendants’ attorney vs.
plaintiffs’ attorney and DOL
Defendants winning most cases so far – key problem seems to be that
plaintiffs must overcome argument that providers are just following the
same general practices in the industry
– Need to prove “general practice” is wrong
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DOL
– Compelling public interest for plans not to pay too much – time value of
money
– 2 Key Areas DOL is Confident In
• No process at all (didn’t even think about how much paid)
• Self-dealing – fiduciaries setting their own compensation
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