dol speaks 2009 benefits conference overview michael l. schenk, esq. [email protected]...

DOL Speaks 2009 Benefits Conference Overview

Michael L. Schenk, [email protected]

Wells Fargo Insurance Services Confidential. © 2006 Wells Fargo Insurance Services. All rights reserved.

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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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Phyllis Borzi Comments on EBSA

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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Phyllis Borzi Comments on EBSA – Cont’d

Delinquent employer contributions – national priority in 2010 FY

New priority – contributory plan criminal project – false 5500 forms and contributions not actually made as represented

MEWA enforcement – either not good in risk management, or crooks

ESOPs – valuation issues, ESOP transactions (ROBS?)

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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Investment advice – needs to be affordable and unbiased– 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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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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Participant contributions safe harbors– Met if deposited within 7 business days– Final regs coming

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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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

Health initiatives – GINA proposed regs soon; Mental health parity soon Expand ERISA Coverage? Voluntary 403(b)s? Severance Plans?

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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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Legislative Agenda

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

Fee Disclosures – High priority for Chairman George Miller (House Education and Labor Committee)

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Fee Disclosure

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?

To Participants– Requirements going under 404– DOL has tools– see

http://www.dol.gov/ebsa/publications/401k_employee.html

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Form 5500 – EFAST2 Transitions

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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Form 5500 – EFAST2

Two Methods– IFILE– 3rd Party Vendor

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 AFTER PRESENTATION PREPARED, DOL RELEASED Q&A – VERY

HELPFUL – SEE http://www.dol.gov/ebsa/faqs/faq-EFAST2.html

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Form 5500 – EFAST2 – Cont’d

5500-SF– Cannot use if there’s any real estate, even if bank-trusteed

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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Form 5500 – EFAST2 – Cont’d 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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Form 5500 – EFAST2 – Cont’d 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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Investigations

Consultant/Advisor Project Contributory Plan Criminal Project

– Applied to both retirement and health & welfare plans 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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Investigations

Consultant/Advisor Project Contributory Plan Criminal Project

– Applied to both retirement and health & welfare plans 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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Investment Advice

Nothing much worth mentioning – still working through level fee and computer model rules

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403(b)s

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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403(b)s – Cont’d

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 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 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)

403(b)s and 404(c)– Sadly, not addressed

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Litigation

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

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

dol speaks 2009 benefits conference overview michael l. schenk, esq. [email protected]...

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