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First Kill All the Lawyers... Debra Wilson, NAIS.

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1 First Kill All the Lawyers... Debra Wilson, NAIS

2 Be sure to write...   202 973 9716  What do I do?  About this presentation...  Ground Rules –Welcome to Las Vegas –Who is your lawyer?

3 How the system works...  In the beginning: The Constitution  Running with the Ball: Congress  Running off field with the Ball: Agencies  Referees for today’s game: Courts  Unofficial Referees of Own Teammates: Agencies  Why Can’t My Lawyer Give Me a Straight Answer?

4 Other Concerns  State Law: Second Layer of Confusion  Federal Floor Can be Raised –E.g., Educational records  The importance of counsel –Determining the law: legislation, regulations, cases –Covering your assets

5 What’s new and interesting in the legal world?  What’s been happening in the legal world? –Still Enron – Conspiracy of Fools –Red Cross (again), American University –Princeton –Harvard –Avian Bird Flu  What about us? –Grab bag – Internet, compensation, predators, governance –A note on one of last year’s hypos

6 First Hypothetical  Word has reached your ears that a ninth grader has been posting messages on alleging that your athletic director has been inappropriately touching her. Further, the ninth grader’s postings include passages recounting her doing inappropriate things, including doing drugs, with a number of her friends. What do you do?

7 Pew Study, July 2005:  87% of U.S. teens ages 12 to 17 currently use the Internet, representing about 21 million youth.  Of those, approximately 11 million teens go online on a daily basis.”  75% of 12-17 year-olds online.

8 MySpace.Com  Launched September 2003  Nearly 70 million members  240,000 new registered users per day  #2 ranked site on the Internet in terms of page views  78% of the users on the site are 18 years of age or older  User Breakdown: 50.2% Female / 49.8% Male

9 What can you do?  Be proactive at school –You can block sites –You can track use –The Internet does not allow people to use their natural danger sensors, and this requires training. –Educate the students – different programs –Educate staff! – recent scenario –Scan the site. –Acceptable Use Policy – applying to both students and staff.  Work with parents –Keeping online use in central locations –Tracking use and looking at profiles –Actually understanding how it works.

10  Likely Changes in Policies –Off Campus Behavior –General Acceptable Use Related to Using or Accessing –Review of Confidentiality with Staff –Tracking / Monitoring Use – or at least the ability and notice.

11  Inappropriate touching?  Contents of the postings relating to drugs, etc?

12  Several students have come to you irate at the notion of the school allowing law enforcement to track their Internet activities. What are they talking about?

13  Communications Assistance for Law Enforcement Act (CALEA)  Purpose to allow real time surveillance of criminal activity, largely over phones.  August 2005 FCC decided it applies to all facilities based internet service providers.  Full compliance within 18 months (February 2007)  Still don’t really know what will be required.  Might exclude schools, might not. DOJ driving the ship a bit, there is a helpful footnote.  Are our students doing anything that would bring on something like this?

14  A case of avian bird flu has been identified in Mexico. Health analysts are 90% sure that the flu has mutated to a human to human form. What do you do?

15 Avian Bird Flu  Of the 149 people who have been known to have the disease, 80 have died.  Currently must have contact with infected birds, but chance of human to human mutation. Such a mutation and change could create a $800 billion pandemic (according to the World Bank)  Pandemics average three times per century. (1918, 1957, 1968)  Est impact avian flu: 7.5- to more than 350 million deaths.  Currently in Asia and Eastern Europe  Has been found in animals that have eaten raw chicken.

16  Need a human mutation to get pandemic.  Little existing immunity in humans currently for the strain (H5N1). Would make it particularly lethal and rapid.  No vaccination for months after appearance.  Impact: 89,000 to 270,000 deaths in US, 25% or more of countries workers needing between 5-20 days of sick leave.

17 What do you do?  Business continuity plan.  Before: –Stay abreast of information about disease and potential impact – NYSAIS and NAIS have info –Regularly contact association and gov’ts for what they are giving for guidance and requirements. –Review current crisis plans, risk management, etc., to see how they will hold up. Fewer people? Remote working? –Educate employees –Have key senior managers trained and ready to act –What to do if you identify a case of avian bird flu? –Minimizing risk of exposure.

18 Outbreak – Tiered planning  Covers all the fronts –Investments – theory that market will crash –Health and safety and procedures –Operational responses (staying open?) –Human resources – who do you NEED? –Communications – Beyond snow day lists –Resource allocation –Government involvement –Physical plant issues – when someone with bird flu on your campus

19  What is one of the biggest questions for schools? –Can we do what we do with remote access?  What does that mean for you in terms of advance planning?  Balance between acting too soon and acting too late. –Particularly true for boarding schools given the travel component. –Similar for those whose students use public transportation

20  Communication your plan ahead of time to all constituencies.  Parents – they should know what services the school can provide (or will try to provide) in the event of a pandemic. Particularly true to maintain steady tuition and keep students moving towards degrees. LA schools.  Faculty and staff – how long and in what way will the school function. How long will everyone be on the payroll in the event of a pandemic, particularly those that truly need to be physically present to do their jobs. Should be communicated in advance

21  The head is planning to retire in a year. The board has hired a new head to begin after he leaves. The board and the incoming head wanted to work out the contract details in relative confidence, so only the board chair and incoming head were involved in negotiations.  The entire board votes for the new contract without reading it. In the spring, the new board chair finds out that the incoming head has a salary $125,000 more than the current head’s contract, and is ballistic over some other terms. What does the school do?

22  What about the governance issues here?  What is the legal issue (beyond the fiduciary ones?)

23 What are they looking for?  Excess benefit given to disqualified person.  Excess benefit - beyond the fmv of compensation for service, etc. Includes anything from building contracts to housing, meals and deferred comp. Value = Broad.  Disqualified person? Person who can exercise substantial control over the institution (generally looking at finances)

24 Intermediate Sanctions: Safe Harbor  Creating a Rebuttable Presumption: transaction approved by school’s governing board or committee thereof that: –Is independent. Must be no conflicts of interest in those voting or debating. Check your bylaws and current policies. –Relies on comparable data when approving. Gross receipts of less than $1mill only need comp data from 3 other sim schools. Over $1mill, broader pool –Documents basis for decision. DETAIL Minutes. Terms and date; present for discussion and vote; source and substance of data; any conflicts; reasons for any discrepancies. Minutes w/in 60 days or by next meeting of board & reviewed and approved w/in reasonable time. –A word on the new 990

25 What about the new 990?  Biggest changes: –Reporting of relationship between board members (both familial and corporate) –Reporting of any compensation to former key employees or other disqualified people – namely board members. –Is the IRS collecting this information for kicks?

26 What about your nonprofit status? Proposed Regs  Want to be proactive about this process  Have a process that handles head and probably business officer contracts, as well as any service contracts with disqualified people.  Look at past circumstances and try to assess the health of those contracts. If necessary, take steps to rectify.  Make sure there is a healthy conflicts of interest and other policies in place.  The IRS looks to see how much, how often, and mitigating steps taken before and after. It’s better for you to find it than the IRS (if you do something about it).

27 What about the new head?  Process is going to be SO important for the whole thing  Things not to have in place: the outgoing head –Transitioning head issues  Things to have in place: –New ideas – this can be a time of opportunity –Training off site if they need it (new head) –Administrative training re: the school –Board transition support team –Other heads in community as support

28  You know there is some sort of promise to your head about a $10,000 a year bonus, payable upon his retirement, if he stays until the end of the 2007-08 school year. You have never seen anything in writing, and suspect there is nothing but this random “arrangement.” Should you be concerned?

29 409A  Why was this implemented?  Controls on receipt of the income – keeps money approachable by creditors.  Any compensation earned in one year and paid in a subsequent year potentially subject to 409A  Can be traditional nonqualified deferred comp, excess benefit plans tied to qualified retirement plans, bonus and other cash incentive plans, severance  Not qualified plans: 401(k), 403(b), 457(m) or other standard benefits (vacation, sick leave, various health or medical accounts)

30  Proposed regulation exceptions: –Amts paid by March 15 th of the year following the year in which the amt vests. – Involuntary terminations as long as not 2 times base pay and paid within 2yrs from time of termination, also employees that terminate during a “window program” (1 yr window). – If earned and vested prior to Jan 1, 2005 not subject to 409A

31 What does it mean?  Only payable on certain distributable events –Death, disability, sep of service, change in control, unforeseeable emergency, specified time or pursuant to fixed schedule. –What does this mean as a practical matter? –Decisions must be made as to form and time by the end of the year before the year in which services are performed. –Changes to this decision may not take effect for one year, and payment may not begin until 5 yrs out from original date of distribution. (ensure substantial change). 2006 transition relief.

32  What if we don’t comply? –Immediate taxation upon vesting, 20% excise tax paid by employee, interest on amts not previously included at fed underpayment rate plus 1%.  Good faith compliance by Jan 1, 2005, actual compliance on December 31, 2006.  Steps: identify (deferred, any exceptions, relief period), get in good faith compliance, amend to comply, look carefully at how applies to amts in 2006 vs. later.  A word on plans in general...

33  One of your school’s largest donors has been taking some estate planning steps lately. She would like to prepay tuition for her 10 grandchildren, locking in a tuition rate. However, if any of the grandchildren transfer to another school, she wants the money to follow them. What do you do?

34  Prepay tuition  IRS just issued another private letter ruling reiterating the ability to do this. Few things to bear in mind –Only for tuition –It’s not a donation – even if child decides not to go. –Nonrefundable (some debate about whether transferable to another institution – cutting it close) –Some latitude about what the terms are (lock in a rate? Parents pay the difference?) –Should have a written agreement.

35 Use of Funds  Ten years ago a family gave your school $1.5 million for a scholarship fund designed to provide scholarships for children Polish ancestry. You director of admissions has just come to you to let you know that any time the scholarship money was not used, your admissions people rolled it into the financial aid fund that year. This has happened for three years. Should you be worried?  Purpose of the funds?

36  You know that movies are the gateway to peace on rainy days for after school programs, but your school has never gone through any kind of licensing process and copyright on a number of levels has been bothering you for a while. What do you do?

37 Copyright in Schools  Movies –Very limited times when showing movies is permitted. Must be teacher present, truly integral to the course. –Very limited rules on recording and showing as well (45 days, etc.)  Music –P2P file sharing. Who is interested in P2P? –What does it do to your school computers?

38  Text –Has been a problem for a while. When is it fair use, and when are you getting into copyright violations? What about course packs?  Fair Use –Educational purpose –Nature of the work –How much is being used –Potential monetary impact

39 Why does it matter? What do you do?  Licensing – cost?  Potential P2P liability  Bigger industries are being affected.  Internet makes this more and more an issue.  Still trying to teach the basics to our students, basics that are potentially more important now than they were before. –Identifying and avoiding plagiarism –Respect for property – intellectual and otherwise

40 More Resources  NAIS WebSite – –Government Relations –Advisories and Resources  BoardSource –  Me – –202.973.9716

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