Employee Benefits Security Administration29 CFR Part 2550 §408(b)(2)Prohibited Transactions, Hidden Fees & Conflicts of Interest in Employee Retirement Plans

NY CPE Program

March 15, 2011Charles Massimo, President, CJM Fiscal ManagementJames HollandRick Canipe, EA, CFP, QKATreasury License 77840IRS CAF 03-0123051R

Employee Benefits Security Administration29 CFR Part 2550 §408(b)(2)Prohibited Transactions, Hidden Fees & Conflicts of Interest in Employee Retirement Plans

NY CPE Program

March 15, 2011Charles Massimo, President, CJM Fiscal ManagementJames HollandRick Canipe, EA, CFP, QKATreasury License 77840IRS CAF 03-0123051R

Content Courtesy of

James HollandRick Canipe, EA, CFP, QKA

Why Be Here? What shall we review?Why Be Here? What shall we review?

1. EBAs• ERISA Budget Accounts are missing and they’ll

pay your audit fees

2. Investment Friction lawsuits• Fiduciaries breached duty of prudence by

investing in retail share classes*

3. Prohibited Transactions • They’re in >80% of YOUR plans

Learn how to quickly find Prohibited Transactions and verify incomeLearn how to quickly find Prohibited Transactions and verify income

Documentation and Record Retention Members bear primary responsibility of

documenting compliance with CPE requirements. For each program the member should be able to document the following:• Sponsor• Title and description of content• Date(s)• Location• Number of CPE contact hours

AICPA Membership CPE Requirements

Your Client’s ResponsibilitiesYour Client’s Responsibilities

LEGAL EXPOSURE. In DiFelice, the 4th Circuit Court of Appeals writes, “Good faith does not provide a defense to a claim of breach of these fiduciary duties; ‘a pure heart and an empty head are not enough.’”

DOL Assistant Secretary Campbell recently testified, “After initially selecting service providers and investments…, fiduciaries are required to monitor plan fees and expenses to determine whether they continue to be reasonable and whether there are conflicts of interest.”

SAS 104-111SAS 104-111

Calls for thorough documentation of the audit. The Plan Sponsor can face financial penalties if the audit is deemed deficient because the documentation was incomplete.

Your ChallengesYour Challenges

“The Labor Department has also uncovered misunderstandings on how to audit investments. Audit procedures on parties in interest and prohibited transactions are also an area the Labor Department feels is not properly audited. Auditors need to perform procedures to address prohibited transactions with parties-in-interest.”

—Diane Wasser, Officer in Charge — Pension Services Group, Amper, Politziner & Mattia P.C., The Metropolitan Corporate

Counsel (July 2007)

Common Audit DeficienciesDOL & Peer Review FindingsCommon Audit DeficienciesDOL & Peer Review Findings

Related Party/Prohibited Transactions No related parties noted in workpapers

Lack of understanding as to what are prohibited transactions

Parties-in-interest, not N/A

• Sponsor is a party-in interest/meets exception

Example Control Deficiency # 6Example Control Deficiency # 6

Improper valuation of investments, especially alternative investments

Your CompetitorsYour Competitors

10,000 independent qualified public accountants audit 76,000 plans

6 perform more than 1,000 audits, (80% of all plan assets)

64 perform more than 100 audits that cover 25,000 plans

8,000 perform 5 or fewer audits

4,800 perform only 1 audit

• An ERISA “independent fiduciary” that relieves other fiduciaries of the responsibility for the plan’s decisions. o [ERISA §405(d)(1)]

o U.S. Dept. of Labor Regulations §2509.95-1(c)(6)

Who are we?

IRS Enrolled Agent

U.S. Treasury License 77840, No Limits

IRS Centralized File (CAF) 03-0123051R• This document is intended to be used by the recipient only and not shared unless approved

by MillenniuM. It is not intended to constitute legal or tax advice in any particular matter. Transmission of this report does not create a MillenniuM-client relationship. The firm does not warrant and is not responsible for errors or omissions. Any legal or federal income tax advice contained in this communication is neither intended nor written to be used as such or to avoid penalties under the Internal Revenue Code or to promote, market or recommend a transaction or legal/tax matter addressed herein.

Why All the Lawsuits and Legislative Efforts?

LandscapeLandscape

1. Investment Managers

2. Plan Sponsors (including C-Suite)

a. Fiduciary Breaches

b. 8-figure Settlements

c. Do not underestimate LaRue

3. Service Providers

The 3 Waves of LawsuitsThe 3 Waves of Lawsuits

Lawsuits Against Plan SponsorsLawsuits Against Plan Sponsors

A search of 401(k) lawsuits highlights three (intertwined) areas of concern:

1. Excessive Fees

2. Employees Arguing Financial Harm

3. Fiduciary Breaches / Negligence