1. Fiduciary Oversight: A Process & Approach to Best Practices Charles A. Bruder, Esq. Scott Rappoport The material provided herein is for informational purposes only and is not intended as legal advice or counsel.

2. 2 Please help yourself to food and drinks Please let us know if the room temperature is too hot or cold Bathrooms are located past the reception desk on the right Please turn OFF your cell phones Please complete and return surveys at the end of the seminar

3. Fiduciary Oversight & Timely Topics For Benefit Plan Sponsors

4. 4 Fiduciary Oversight In The Spotlight LaRue v. DeWolff (Supreme Court 10/2007) ERISA litigation up 25%/year (past 4 years) Pension Protection Act (2006) DOL disclosure initiatives (2008) Changes to Form 5500

5. 5 Who is a Fiduciary? Any person who: Exercises any discretionary authority or discretionary control in managing the plan or who has any authority or control in managing or disposing of its assets; Has any discretionary authority or responsibility in administrating the plan; or Renders investment advice for a fee or compensation with respect to any monies or other property belonging to the plan.

6. 6 Responsibilities Of a Fiduciary Under ERISA Fiduciaries are required to perform their duties solely in the interest of the plan participants and their beneficiaries. Fiduciaries must exercise the care, skill, prudence, and the diligence of a prudent person who is acting in a like capacity and is familiar with such matters.

7. 7 What are Fiduciaries’ Exposures Under ERISA? Fiduciary liability is personal, absolute and unlimited. ERISA holds fiduciaries personally liable for their actions.

8. 8 Safe Harbors Voluntary May insulate from liability Must demonstrate compliance with requirements: Prudent selection Prudent Monitoring Acknowledgement of fiduciary status

9. 9 404(a) Safe Harbor Provisions Investment decision delegated to “prudent expert” Experts selected by due diligence process Experts exercise discretion over assets Expert acknowledges co-fiduciary status in writing Fiduciary must ensure that experts perform the agreed upon tasks using agreed upon criteria

10. 10 404(c) Safe Harbor Provisions Requires notification in writing of intent to comply with 404(c) safe harbor Three different investment options with differing risk/return profiles Information and education on the different investment options Opportunity to change investments with appropriate frequency.

11. 11 Fiduciary Adviser Safe Harbor Provisions Select a qualified fiduciary adviser who: Acknowledges fiduciary status in writing Discloses all conflicts of interest Discloses all forms of compensation

12. 12 Qualified Default Investment Alternative (QDIA) Plan sponsor can avoid liability for participant investment decisions by offering QDIA Age-based funds or models Risk-based funds or models Age-based managed accounts Money market accounts for 90-120 days

13. 13 Fiduciary Oversight Benefit Sources & Solutions Best Practices Creation of the Investment Policy Statement/Governing Body Document Creation of the Investment Committee Designation of qualified professional investment counsel Ongoing monitoring & reporting

14. 14 Monitoring & Reporting Benefit Sources & Solutions Best Practices Review actual Portfolio for MPT Statistics Appropriate Index Peer group Compare investment expenses for risk & reward Create a quarterly correlation matrix Review operational quality of investment managers Disclose plan expenses and revenue sharing Create “plain English” quarterly “minutes” for plan sponsor tied to an annual IPS review Standards defined in the IPS

15. 15 Monitoring & Reporting Investment Committee Meeting Minutes Information that is provided must be evaluated and actions that are considered must be documented Watch list procedures must be followed

16. 16 How Can Benefit Sources & Solutions Help Fiduciary Review Checklist Mutual Fund Review Source of technical information 888-560-5171

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18. 18 ARRA COBRA Subsidy Became Law February 17, 2009 Involuntary Terminees from 9/1/2008-12/31-2009 Effective March 1, 2009 65% Premium Subsidy COBRA Beneficiary remits 35% of 102% Difference is offset by payroll tax credit Employer is not responsible for determining income eligibility

19. 19 ARRA Notice Requirements By April 18, 2009, notice of new COBRA eligibility enrollment option to eligible beneficiaries who did not elect COBRA 9 Month Subsidy period

20. 20 Children’s Health Insurance Program (CHIP) Effective April 1, 2009 Applies to all plans including self insured Children eligible for premium assistance under state programs can elect employer sponsored plans This necessitates new eligibility period for those choosing the employer sponsored plans. SPD’s for Medical and Cafeteria plans require updated language.

21. 21 Do These Things Keep You Awake at Night? Controlling Expenses Employee Retention Leveraging Resources Human Capital Challenges Lack of Control Regulatory Burden

22. 22 Why Benchmarking Does the “annual train wreck” work for you? Do you have a benefits and comp philosophy? Desire to be a competitive employer Turnover Issues Morale Issues Communications

23. 23 About the Survey  Conducted Q1 & Q2 2008  Joint effort of 142 UBA Members  12,680 Employers Survey  168,019 Health Plans  National In Scope

24. 24 Who is United Benefit Advisors? Consortium of 140 of the Nation’s Premiere Benefits Firms Community of peers learning, sharing & focusing on better serving their clients Leverage our connections, experience & wisdom to enhance the client experience Work in tandem to maximize the impact technology has on improving business processes

25. 25 Full-Time Eligibility Requirements

26. 26 Full-Time Employee Waiting Period Immediately FollowingFirst of Month Following

27. 27 Type of Plan Offered

28. 28 Annual Cost Per Employee - Total Cost

29. 29 Total Monthly Premiums 25 th Percentile Median 75 th Percentile Average

30. 30 Changes to Total Premiums 25 th Percentile Median 75 th Percentile Average

31. 31 Monthly Employee Share –% of Premium 25 th Percentile Median 75 th Percentile Average

32. 32 Average CoPays

33. 33 In-Network Deductibles 25 th Percentile Median 75 th Percentile Average

34. 34 Out-of-Network Deductibles 25 th Percentile Median 75 th Percentile Average

35. 35 Incentives Included Wellness Programs and Incentives

36. 36 Wellness Programs & Components

37. 37 HRA And HSA Plans HRAsHSAs

38. 38 Annual HRA Funding Levels

39. 39 Type(s) of employee communication tools utilized: (Note: More than one response could be selected, so the percentage of the total responses exceeds 100%)

40. 40 Type(s) of employee communication tools utilized: (Note: More than one response could be selected, so the percentage of the total responses exceeds 100%)

41. 41 Employer-Paid group benefit programs:

42. 42 Employee access to financial advice regarding retirement plan savings and investment options: (Note: More than one response could be selected, so the percentage of the total responses exceeds 100%)

43. 43 Employee programs or services in place or planned:

44. 44 Participate in the 2009 Benefit Sources & Solutions/UBA Survey and Receive Custom Benchmarking Report Results Go to www.benefitsource.com and seewww.benefitsource.com National Health Plan Survey

45. Fiduciary Oversight: A Process & Approach to Best Practices Charles A. Bruder, Esq. Norris McLaughlin & Marcus, P.A.

46. 46 I may have violated the provisions of a company sponsored retirement plan…what can I do?

47. 47 Fiduciary Duties and Corrective Action – A Practical Approach Several available options –Do nothing, and hope that the problem is not discovered –“Self correct” the potential fiduciary breach –Disclose the breach to the appropriate government agency/program The key to addressing a breach of a fiduciary duty is identifying the available correction methods and determining the appropriate course of action

48. 48 The “Do Nothing” Approach Pros –No action or cost involved –Does not require disclosure to any government agency/plan participant –May result in cost savings to the plan sponsor –Permits the plan sponsor to continue with its current form of plan administration

49. 49 The “Do Nothing” Approach Cons –The “ticking time bomb” –Raises the potential costs associated with corrective action –Failure to address a fiduciary breach may be a further breach of fiduciary duty –Audit Lottery – Are you feeling lucky?

50. 50 Fiduciary Duties and Corrective Action – A Practical Approach Available Corrective Programs 1.Employee Plans Compliance Resolution System (“EPCRS”) 2.Voluntary Fiduciary Correction Program (“VFCP”) 3.Internal Revenue Service (“IRS”) Notice 2008-113

51. 51 Employee Plans Compliance Resolution System EPCRS contains three correction programs: –Self-Correction Program (SCP) –Voluntary Correction Program (VCP) –Audit Closing Agreement Program (Audit CAP)

52. 52 Employee Plans Compliance Resolution System Qualification Failures Plan Document Failure –Plan provision (or absence of provision) that violates the Code Operational Failure –Plan document complies with the Code but plan doesn’t operate in accordance with its provisions

53. 53 Employee Plans Compliance Resolution System Principles and Correction Methods Full correction required for all plan years Acceptable correction methods & retroactive plan amendments –Expanded definition of “reasonable and appropriate” Model correction methods provided in Appendices A & B of Rev. Proc. 2008-50

54. 54 Employee Plans Compliance Resolution System SCP – Self Correction Program No disclosure to IRS, no fee, no sanctions Can only correct operational failures Must have a favorable IRS Determination Letter Must have established practices & procedures to assure ongoing compliance Corrective action requires documentation

55. 55 Employee Plans Compliance Resolution System SCP – Self Correction Program Insignificant vs. significant failures –Applicable corrective period – choosing the right one –Factors in determining the type of failure which may be self-corrected What if the failure cannot be self-corrected?

56. 56 Employee Plans Compliance Resolution System VCP – Voluntary Compliance Program Single program and single-admission process Submission procedures Ends with a compliance statement – Don’t need to sign statement Determination Letter/Retroactive Plan Amendment may result in Determination Letter if plan on-cycle

57. 57 Employee Plans Compliance Resolution System SCP versus VCP Distinction between insignificant and significant errors List of Factors to Consider –whether failure occurred during period of exam –% of assets/contributions involved –# of years involved –% of participants affected –% of participants who could have been affected –correction within reasonable period –reason for the failure Uncertainty for plan sponsor

58. 58 Employee Plans Compliance Resolution System Rev. Proc. 2008-50: New Fee Schedule VCP fee unchanged Compliance fee for §401(a)(9) failures reduced to $500 Fee for failure to amend for EGTRRA good-faith amendments, §401(a)(9) interim amendments, and amendments required to implement optional law changes: flat $375

59. 59 Employee Plans Compliance Resolution System Audit CAP Higher sanction Factors used in determining sanction: –Practices in place to identify and prevent plan failures –Steps taken to correct failures –Reason for the failures

60. 60 Employee Plans Compliance Resolution System Audit CAP Length of time that failures occurred Number of NHCEs affected if plan is disqualified Existence of a favorable Determination Letter Whether the error involves a demographic failure Whether the only failure is an employer eligibility failure

61. 61 Employee Plans Compliance Resolution System EPCRS – What is Not Covered Form 5500 filing delinquencies –DFVC Program Prohibited transactions Funding deficiencies –Certain limited relief available under the Worker, Retiree and Employer Recovery Act of 2008

62. 62 Fiduciary Duties and Corrective Action – A Practical Approach Voluntary Fiduciary Corrective Program Corrective program sponsored by the U.S. Department of Labor –Certain enumerated transactions which may be corrected Prohibited purchases Sales and exchanges Improper loans Delinquent contributions Improper plan expenditures

63. 63 Fiduciary Duties and Corrective Action – A Practical Approach Why VFCP? Type of corrective action required Avoidance of civil penalties imposed by the IRS Obtain a DOL “no action” letter Avoidance of the imposition of excise taxes if the class exemption provisions are met Processing/corrective costs Forum shopping

64. 64 Voluntary Fiduciary Correction Program VFCP – Class Exemptions Six classes of prohibited transactions covered –Failure to transmit contributions/loan payments in a timely manner –Loans made to parties in interest –Sales of property with parties in interest –Sales of real property to a plan with a leaseback to the employer –Purchase of an illiquid asset by a plan –Certain plan expense issues

65. 65 EPCRS or VFCP? Which program is appropriate for correction of a fiduciary breach? –Type of action (or inaction) which resulted in the breach of fiduciary duty –Appropriate correction method Crossover issues –Cost/benefit analysis –Processing time

66. 66 Fiduciary Duties and Corrective Action – A Practical Approach Code Section 409A Although not technically a “fiduciary duty,” a potential source of financial woe for an employer Code section has broad application to a variety of arrangements IRS Notice 2008-113 provides a model correction program –Expands the program established under IRS Notice 2007-100

67. 67 IRS Notice 2008-113 Program scope –No relief for documentary compliance failures Includes required amendments –Limited relief available for “insiders” –Applicable to “inadvertent and unintentional” errors –“Full” correction is required –Avoidance of excise taxes

68. 68 IRS Notice 2008-113 Eligibility Provisions “Inadvertent and unintentional” operational errors –Impermissible payments made to an employee Demonstrable steps must be taken to avoid future errors Recipient’s income tax return for the year in which the error occurred cannot be under IRS audit The error has been fully corrected –IRS guidelines for full correction The company cannot be in financial distress –Significant risk of non-payment?

69. 69 IRS Notice 2008-113 Same Year Corrective Method Early payments must be returned to the company Late payments must be to the employee -Non-insiders may take up to 24 months from income tax return due date to repay -Requires immediate and heavy financial need Interest payments may be required Avoidance of Code Section 409A penalties

70. 70 IRS Notice 2008-113 Post Year Corrective Method Non-insiders Corrective methods are similar to the “same year” correction guidelines Employee may be required to make interest payments Avoidance of Code Section 409A penalties

71. 71 IRS Notice 2008-113 Other Key Features Correction of impermissible stock right grants –“Reset” feature Limited corrective opportunity for other operational errors –$16,500 ceiling in 2008 Other corrections permitted but will not avoid the 20% excise tax Employer notice requirements

72. 72 Code Section 125 New Proposed Treasury Regulations Effective for plan years commencing on or after January 1, 2009 Apply to all arrangements which qualify for beneficial income tax treatment under Code Section 125 –Group Medical Insurance Plans (“Flex Plans”) –Premium Only Plans –Medical Flexible Spending Accounts –Dependant Care Flexible Spending Accounts

73. 73 Treasury Regulations clarify that Code Section 125 is the exclusive means under which nontaxable group health benefits may be provided to employees –If your company plans do not satisfy the provisions of the new proposed Treasury Regulations, benefits paid under these plans will be taxable to the participants. Code Section 125 New Proposed Treasury Regulations

74. 74 Code Section 125 Proposed Treasury Regulations – What Has Changed? Written Plan Requirement –Plans must include the following items: Specific details concerning all benefits available under the plan Eligibility provisions for participation (employees only) Rules governing benefits elections, maximum elective contribution limits Rules governing the irrevocability of elections Details concerning employer contributions Definition of plan year –Plans must be operated in accordance with stated terms

75. 75 Code Section 125 Proposed Treasury Regulations - What Has Changed? Nondiscrimination Testing Required –Cafeteria plans cannot discriminate in favor of highly compensated employees –Similarly situated employees must have a uniform opportunity to elect to receive benefits –Objective nondiscrimination testing formula is provided in the Treasury Regulations –“Safe Harbor” for premium-only cafeteria plans

76. 76 Code Section 125 Proposed Treasury Regulations – What Should Employers Do? Treasury Regulations apply to plan years commencing on or after January 1, 2009 Need to carefully review plan documents –Summary plan descriptions –Intranet/employee communications –Cafeteria plan forms brochures Amend plan documents currently (if necessary) Create a compliance manual

77. 77 COBRA Subsidy – Notice Requirements By April 18, 2009, group health plans subject to COBRA must issue to “assistance eligible individuals” notice of the extended election period of COBRA coverage and the COBRA subsidy provisions. –A model notice is to be issued by the Secretary of Labor by March 19, 2009. –60 day election period The notice must include specific information including: –The forms necessary to establish eligibility for the premium reduction; –Contact information for the plan administrator regarding the premium reduction; –A description of the extended election period; –A description of the individual’s obligation to notify the plan administrator of eligibility for subsequent group health plan coverage; and –A description of the eligible individual’s right to a coverage.

78. 78 COBRA Subsidy - Notice Requirements Notices must be provided to assistance eligible individuals who became entitled to elect COBRA continuation coverage during the period September 1, 2008 through December 31, 2009 Notice regarding the special election provisions must be provided to all persons who terminated employment (for reasons other than gross misconduct) from September 1, 2008 through December 21, 2009.

79. Questions & Answers Thank you for coming!