© 2005 AMERICAN BANKERS ASSOCIATION BANKERS Service Provider Compensation – Are There New Limits? April 9, 2008 Lisa J. Bleier Center for Securities, Trusts & Investments American Bankers Association

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS ERISA dictates the rules for the conduct of fiduciaries Along with these rules are certain prohibited transactions On top of the prohibited transactions, are exemptions.

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS Prohibited Transactions ERISA Sec. 406(b)(3): “A fiduciary with respect to a plan shall not receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.”

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS What does 406(b)(3) mean? It is a prohibited transaction for there to be a transaction between a plan and a fiduciary, unless specifically allowed – i.e. a PTE What is “consideration”, “personal account”? “in connection with”?

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS In a Nutshell Gifts and Entertainment is where the DOL is focused –Golf outing –Nice dinner –Training seminar –Motorcycle? –Boat?

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS What is New? Is there a proposed change to the law? No What has changed?

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS What is New? Comments of Virginia Smith, DOL Office of Enforcement Activities of OLMS –Revised LM-10 –Revised LM-30 –FAQs

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS Comments from the DOL Virginia Smith, Director of Enforcement, EBSA, “Fiduciaries must be very careful about accepting any gift or gratuity from a service provider, even items of modest value.”

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS What are LM-10/LM-30? The Forms that must completed under the Labor Management Reporting and Disclosure Act of 1959 LM-30 – filed by the union officer or employee LM-10 – filed by the employers and service providers

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS What are LM-10/LM-30? Must report any payment or loan, direct or indirect, of money or other things of value given to any union, union official, agent or employee There are certain exceptions

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS LM-10/LM-30 Exceptions in the FAQs De minimis of aggregate $250 Exception for widely-attended events Bank exception

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS LM-10/LM-30 Creates a paper trail Helps EBSA target enforcement

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS Questions to ask before making a payment or receiving a payment Is it permissible? Look to ERISA rules If a union client, is it reportable? Look to LMRDA

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS But what does this have to do with service providers who do not service unions?

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS This entire exercise in the union context has focused DOL on gifts and entertainment throughout the industry – not just unions.

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS Where do we go from here: Can a service provider pay expenses for trustees which could be properly paid by the plan? Is there any “bright line” to follow?

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS Request for DOL Guidance IAA and SIFMA have requested guidance from the DOL based on Rule NASD 3060.

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS NASD Rule 3060 Prohibits any person from giving anything of value in excess of $100 per individual per year Does not apply to gifts of de minimis value Does not apply to promotional items of nominal value that display the firm’s logo

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS For Banks: Bank Bribery Act Internal Policies and Procedures Ethical Rules

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS Bank Bribery Amendments Act of 1985 Requires that the financial institution regulatory agencies publish guidelines to assist employees, officers, directors, agents and attorneys of financial institutions in complying with the law

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS Bank’s Code of Conduct Bank's code of conduct should prohibit any employee, officer, director, agent or attorney from (1) soliciting for themselves or for a third party anything of value from anyone in return for any business, service or confidential information of the bank and (2) accepting anything of value (other than bona fide salary, wages and fees referred to in 18 U.S.C. 215(c)) from anyone in connection with the business of the bank, either before or after a transaction is discussed or consummated

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS Some of the Exceptions: Personal relationships Marketing expenses - to foster better business relations Advertising or promotional material, such as pens, pencils, note pads, key chains, calendars and similar items Gifts of reasonable value that are related to commonly recognized events or occasions, such as a promotion, new job, wedding, retirement, holiday or birthday; or Civic, charitable, educational, or religious organization awards for recognition of service and accomplishment

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS Do we want or need any further guidance?

© 2005 AMERICAN BANKERS ASSOCIATION BANKERS Thank you for your time! Lisa J. Bleier Center for Securities, Trusts & Investments American Bankers Association