1. Marcia S. Wagner, Esq.

2. Heightened regulatory requirements and a shifting fiduciary landscape require those serving employee benefit plans, including accounting the profession, to respond with additional services that will ensure the viability of their clients’ plans.

3.  DOL and IRS in “Gotcha” mode seeking revenue ◦ DOL monetary enforcement up 41% ◦ DOL maintains full-time enforcement staff of 875 ◦ Plan restorations, fines and penalties for 2013: $1.69 billion ◦ IRS is comparing Form 1120 deductions and Form 5500  Penalties for incomplete or untimely filing of Form 5500 ◦ DOL - up to $1,100 per day ◦ IRS - $25 per day up to $15,000

4. Documents that must be delivered to plan participants and beneficiaries: ◦ (1) summary annual report; ◦ (2) summary plan description; ◦ (3) summary of material modifications to the plan; ◦ (4) statement of benefits to terminated vested employees; and ◦ (5) notice of failure to meet minimum funding standards in a defined benefit plan. $110 per day potential penalty for failure to provide notice after participant request

5. Sponsors of employee benefit plans are subject to ERISA fiduciary duties of loyalty, prudence, asset diversification and must follow plan documents In recent years employers have become subject to increased regulatory duties relating to: - Selection of plan investments and service providers; the reasonableness of plan fees; disclosures to participants; and selecting annuity providers - Many sponsors seek relief from these and other responsibilities Consequences of breaching fiduciary duties are expensive: - Making plan whole for plan losses or restoring lost profits - Settlements against large employers in private class action litigation over investment fees have ranged from $15 million to $35 million Enhanced fiduciary services are in demand to relieve employers of the new duties as well as burdens of day-to day plan operation

6.  Civil Actions Under ERISA ◦ May be brought by DOL, participants or co- fiduciaries ◦ Fiduciary is personally liable for losses caused by breach  DOL Civil Penalty ◦ Penalty amount is 20% of applicable recovery amount  Excise Taxes  Potential Co-Fiduciary Liability  Employer error resulted in $1.69 billion of recoveries through DOL enforcement in 2013

7.  Plan Disqualification ◦ Document failure ◦ Operational failure ◦ Demographic failure ◦ Employer eligibility failure  Consequences of Disqualification ◦ Plan trust pays taxes on earnings ◦ Employees taxed on vested plan interest ◦ Loss of employer deductions  Penalties reduced or eliminated if failure identified and corrected before IRS discovery ◦ TPA or consultant review can prevent the failure by providing updated documents ◦ Failures identified in plan audits can also be timely corrected

8.  Typical cause of plan document failures ◦ New law or regulation goes into effect and plan is not timely amended ◦ Plan not amended during 5-year amendment cycle for good faith or interim amendments  Language change is frequently minor and may have no actual impact on participants  Minor change can still jeopardize tax-qualification or result in compliance fees payable to IRS  TPA, working with counsel, can more efficiently identify and implement needed amendments than brokers and financial institutions  One size does not fit all  Requirements of DC v. DB plans  Broad coverage v. one-man plans

9.  Core Service Provided by 3(21) fiduciary ◦ Assisting Plan Sponsor in selection and monitoring of Plan’s investment menu options ◦ Advice is non-discretionary (i.e., consists of recommendations)  Related Services ◦ Assisting with IPS document where Plan Sponsor is responsible for reviewing and adopting IPS ◦ Providing quarterly reports and meeting with Plan Sponsor annually ◦ May also offer non-fiduciary services

10.  Financial adviser provides IPS document, subject to plan sponsor direction as to contents  IPS provides critical guidelines form managing plan investments ◦ Sets investment objectives ◦ Identifies who is responsible for investment decisions ◦ Provides criteria and process for monitoring/changing investments  As a plan document, IPS must be followed; it is important that it be consistent with the plan’s investment needs and should be amended if not

11.  Duty to Ensure Fees are Reasonable ◦ New plan Sponsor and participant-level disclosure rules ◦ Class action lawsuits claiming fiduciary breaches due to excessive fees.  Fee Policy Statement is recommended best practice ◦ FPS offers procedural discipline for fiduciary’s review of fees. ◦ Review under FPS should be coordinated with IPS. ◦ FPS itself can help demonstrate prudence ◦ Assistance of financial adviser is critical  General Guidelines ◦ Need to gather all relevant information. ◦ Evaluate fees in light of services provided. ◦ Never look for provider with cheapest fees

12.  Plan sponsors have a fiduciary duty to ensure the reasonableness of plan fees but typically do not have the necessary expertise or resources to make this determination  Benchmarking services are potential remedy ◦ Assist the employer in its efforts to identify all plan fees, including “hidden” indirect compensation. ◦ Equip the employer with tool to be used as part of a prudent review process to monitor the plan’s services and fees. ◦ Provide the employer with competitive pricing information that a Prudent Expert might have, to help assess reasonableness ◦ Role of financial advisor  Selection of benchmarking service provider  Provide benchmarking service with in-house staff

13. TOP THREE ERISA COMPLIANCE MISTAKES 1. Compensation Done Incorrectly 2. Controlled Group Issues 3. Automatic Enrollment Failures

14.  Amount of plan benefits or contributions frequently expressed as percent of compensation ◦ Code §401(a)(17) limits annual compensation that can be taken into account  Limit in 2014 will be $260,000  Plan definition of compensation must be nondiscriminatory under Code §414(s) ◦ Designed based safe harbors  Include regular or base salary or wages and commissions, tips, overtime, premium pay and bonuses  Exclude reimbursements, expense allowances, fringe benefits, moving expenses and deferred compensation ◦ Reasonable formula not favoring HCEs  Examples: Rate of pay vs. actual pay - Pay only while plan participant vs. pay for entire plan year  Plan that includes bonuses but excludes overtime might be treated as discriminatory  Test is whether average percentage of total compensation included under the definition for HCEs exceeds by more than de minimis amount the average percentage of total compensation included for NHCEs

15.  Failure 1: Plan allocation is based on compensation that exceeds the limit ◦ Correction (two alternative methods)  Reduce account balance of affected employee by improperly allocated amount (adjusted for earnings); if excess amount would have been allocated to other employees in year of failure, it must be reallocated to those employees after adjusting it for earnings  Alternative fix: adopt plan amendment increasing maximum percentage of compensation and contribute additional amount for each other employee who received an allocation in failure year  Example: plan contribution rate equals 5% of compensation  5% applied to Employee X’s $300K comp. In 2012 when limit was $250,000 - reduce X’s account by $2,500 excess and reallocate  Alternatively, retroactively amend plan to raise rate to 6%

16.  Failure 2: improper exclusion of bonuses, overtime, commissions or another element of compensation from base on which employees may make elective deferrals ◦ Correction: employer contribution equal to 50% of missed deferral opportunity which would be the employee’s elected percentage of compensation that would have been deferred from the excluded compensation element. Also contribute any applicable match and lost earnings  Failure 3: Improper deferral on items not included in plan definition of compensation ◦ Correction: Distribute excess elective deferrals plus earnings to participant. Forfeit match related to excess deferrals and either reallocate or use to offset future employer contributions

17.  Rules apply as if all controlled group employees worked for employer adopting the plan ◦ Applies to eligibility, vesting, minimum participation, determining contributions and benefits, nondiscrimination, compensation limits, top heavy rules and simplified employee pension and simple retirement accounts  Minimum Participation Example ◦ Failure: Company A maintains a qualified plan with a one year service requirement only for its employees. A is a member of a controlled group of corporations that includes Company B. Employee X completes 3 years of service with Company B and then transfers to Company A. ◦ Correction: The plan must recognize X’s service with Company B and admit her as a participant immediately.

18.  Highly Compensated Employee Example ◦ Failure: Company C and Company D are controlled group members each of which pay Employee Y a salary of $60,000 for 2013. ◦ Correction: For purposes of nondiscrimination testing, Employee Y will be considered highly compensated, since the HCE limit for 2014 is $115,000 and Employee Y’s aggregate compensation is $120,000  Discrimination Testing Example ◦ Failure: Company E maintains a 401(k) plan for its employees that has never been extended to its wholly-owned subsidiary, Company F. When the minimum coverage test is run, including the employees of F Company, the 401(k) plan fails to satisfy Code §410(b) and, as a result ceases to be tax-qualified. ◦ Correction: NHCEs of Company F must be included as participants on a retroactive basis and receive a QNEC sufficient to pass ADP/ACP test

19.  Applies to any plan allowing auto salary deferrals  Employees automatically enrolled in plan at default percent unless elect otherwise ◦ Plan document specifies percent ◦ Employees can opt out or elect different percent ◦ Default percentage must be uniformly applied  Notice Requirements ◦ Written explanation of right to opt out or elect to defer a percent of pay other than default percentage

20.  Failure 1 Plan sponsor fails to implement plan’s auto enrollment provisions by not deferring salary of an employee who failed to make election Correction 1 Nonelective employer contribution under IRS VCP procedure Corrective contribution is employee’s compensation multiplied by 50% of plan’s auto enrollment deferral percentage  Failure 2 Employee never receives enrollment materials and is, therefore treated as an excluded participant rather than a participant whose election has not been implemented Correction 2 Nonelective employer contribution under VCP Corrective contribution is employee’s compensation multiplied by 50% average deferral percentage for the employee’s group (NHCE or HCE )

21. Marcia is a specialist in pension and employee benefits law, and she is the principal of The Wagner Law Group, one of the nation’s largest boutique law firms, specializing in ERISA, employee benefits and executive compensation, which she founded over 18 years ago. A summa cum laude and Phi Beta Kappa graduate of Cornell University and a graduate of Harvard Law School, she has practiced law for over twenty-seven years. Ms. Wagner was appointed to the IRS Tax Exempt & Government Entities Advisory Committee and ended her three- year term as the Chair of its Employee Plans subcommittee, and received the IRS’ Commissioner’s Award. Ms. Wagner has also been inducted as a Fellow of the American College of Employee Benefits Counsel. For the past six years, 401k Wire has listed Ms. Wagner as one of its 100 Most Influential Persons in the 401(k) industry, and she has received the Top Women of Law Award in Massachusetts and is listed among the Top 25 Attorneys in New England by Boston Business Journal.

22. Marcia S. Wagner, Esq. 99 Summer Street, 13 th Floor Boston, MA 02110 Tel: (617) 357-5200 Fax: (617) 357-5250 Website: www.wagnerlawgroup.com marcia@wagnerlawgroup.com  A0126584.PPTX