envision, strategize and actualize Everything You Want to Know About ERISA but Failed to Ask! Ryan J. Loeffers September 2015 Webinar Wednesdays

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary What is ERISA? Stands for “Employee Retirement Income Security Act of 1974” The federal law that regulates employee benefit “plans” Excludes government plans and church plans Preempts most state laws that regulate employee benefit plans –Does NOT preempt: Hawaii Prepaid Healthcare Act State insurance laws

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary What is a "Plan" under ERISA? “An ongoing administrative [benefits] program.” –Not an ERISA Plan if: There is no administration required (e.g. single trigger severance plan or payroll practices); OR The benefit is only provided once.

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary What is a "Plan" under ERISA? Two types of Plans –Pension Plans Provides traditional retirement benefits (i.e. 401(k), 403(b), profit sharing, Employee Stock Ownership Plan (“ESOP”), etc.) Includes both defined benefit and defined contribution retirement plans –Welfare Plans All other ERISA-regulated benefit plans –Health and dental plans –Unemployment benefits –Flexible Spending Plans

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Qualified vs. Unqualified Plans Plans are also either tax “qualified” or “unqualified” Qualified plans –Provides benefits on a tax-free OR tax-deferred basis –Must follow the strict provisions of the Internal Revenue Code Unqualified plans –Benefits provided are taxable wages to employees –Does not follow the requirements of the Internal Revenue Code

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Key Terminology Under ERISA and for Benefits Plan Administrator (defined term under ERISA) –The entity with primary liability for violations of ERISA –Usually the employer Plan administrator (commonly used non-legal term) –“Little ‘p,’ little ‘a’ plan administrator” –Commonly used to refer to the HR person in change of an entity’s benefits –Is not the “Plan Administrator” for ERISA purposes Plan Sponsor (defined term under ERISA) –The entity that decides to establish or terminate a plan or change the benefits within a plan –Usually the employer

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Key Terminology Under ERISA and for Benefits Participant (defined term under ERISA) –Employees, their spouses, and dependents that are covered under the plan Fiduciary (defined term under ERISA) –Person (individual or entity) that has responsibility to act in the best interest of the benefit plan and its participants –May be personally liable for breaches of fiduciary duty –“Fiduciary” is a functional term; a fiduciary includes: The Plan Administrator Persons that provide investment advice for a fee Any person who has discretionary control over plan assets (chooses how to spend money or when money goes out)

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary I have an ERISA Plan. What does that mean? Broad Liability for the Plan Administrator and Fiduciaries Strict government oversight Plan Design Limitations Documentation Requirements Notice and Reporting Requirements

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Broad Liability for Plan Administrator/Fiduciaries Plan Administrator has statutory liability for violations of ERISA –Violations range from $110 to $1,100 per day OR per participant per day! –Statutory violations include late filing, failure to provide notices to participants, failure to provide documents requested by a participant Plan Administrator/Fiduciaries liable for “fiduciary breaches” –Prohibited transactions excise taxes of 20% of the value of the prohibited transaction PLUS 100% excise tax if the transaction is not corrected Not intuitive which transactions are “prohibited” –Damages that result for breaching a fiduciary duty Must make the plan whole

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Broad Liability for Plan Administrator/Fiduciaries Fiduciary Duties under ERISA Section 404: –Act solely in the interest of the participants and beneficiaries; –Act with the exclusive purpose of providing benefits and defraying reasonable expenses; –Act with the care, skill, prudence, and diligence under the circumstances then prevailing of a prudent person; –Diversify plan investments to minimize risk of loss; and –Follow the Plan Document and other documents governing the plan, as long as they comply with ERISA

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Government Oversight United States Department of Labor –Can sue a fiduciary or the Plan Administrator on behalf of a plan or its participants –Enforces penalties for failing to comply with required notices and reporting requirements –Issues regulations interpreting ERISA Internal Revenue Service –Imposes excise taxes against fiduciaries for prohibited transactions –Revokes tax-exempt status for non-compliant plans –Primary focus is pension plans (though also regulates some aspects of welfare plans)

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Government Oversight (Cont’d) Pension Benefit Guaranty Corporation (defined benefit pension plans only) –Insures defined benefit pension plans, similar to how the FDIC insures bank deposits –Oversees poorly funded defined benefit pension plans –Oversees defined benefit pension plans during employer bankruptcy –Regulates plans in mergers and acquisitions – cannot negotiate how plan assets will be distributed; must be allocated per ERISA

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Plan Design Limitations Tax-Qualified Plans –Must include all the required provisions stated into the Internal Revenue Code into the Plan Cannot require that a participant work more than a year to participate Cannot discriminate in favor of highly compensated employees (almost all ERISA plans) Cannot exclude employees that work at least 1,000 hours per year (pension plan) All ERISA Plans –Cannot allow employees to assign their benefits to others –Cannot limit the liability of the Plan Administrator or fiduciaries –Must comply with documentation and notice requirements

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Documentation Requirements Plan Document –All details about eligibility, benefits provided, premiums/contributions payable by the employees and employer, etc. –Each Plan must have its own Plan Document (can combine multiple benefits into a single plans – e.g. health, dental, and life insurance in a single plan) –The Plan Administrator must follow the terms of the Plan Document The Plan cannot provide benefits to an employee that is not eligible, even if the employer wants to extend that employee benefits Summary Plan Description –A summary of the Plan Document must be updated every 5 years if revised, or every 10 years if not revised

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Notice Requirements Form 5500 –Informational tax return filed with the U.S. DOL –Required for all pension plans and welfare plans with over 100 participants Summary Annual Report (SAR) –Narrative description of the Form 5500 send to participants annually –Form SAR is included in DOL regulations Summary of Material Modifications –Narrative notice sent to participants when the Plan is amended 408(b)(2) Notices (pension plans only; eventually welfare plans) Summary of Benefits and Coverage (Health Plans) –8 page summary of health benefits

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Your Benefits Team Plan Sponsor –Employer establishing the plan (aka you!) Plan Administrator –Primary liability and primary duty to oversee the Plan –Normally the employer Third Party Administrator –Entity hired by the Plan Administrator to conduct day-to-day activities of the Plan –Large employers may administer the Plan themselves

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Your Benefits Team (Cont’d) Benefits Consultant –Assists the Plan Administrator with routine notices and questions about plan administration –May draft simple plan documents Insurance Broker –INDEPENDENT salesperson for the employee benefits insurance products –Educates and helps Plan Administrator choose insurance products Investment Advisor –Chooses or recommends investments for the Plan

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Your Benefits Team (Cont’d) Legal Counsel –Assists the Plan Administrator with complex issues –Ensures governing documents are legally compliant –Assists with revising plan documents pursuant to Plan Sponsor’s Instructions –Assists with litigation and agency investigations –Assists with correcting plan administration errors –Assists with project management and service provider management

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Common Plan Administration Errors Prohibited Transactions –Transactions that are per se illegal under ERISA –Does not matter if the transaction is beneficial to the Plan e.g. Employer cannot sell assets to the plan, even if sold at significantly less than FMV –May file with amnesty programs with IRS and DOL to limit liability after prohibited transaction is made Delinquent Form 5500 filings –Can file delinquent Form 5500s and pay a significantly reduced fine Not filing notices special notices for specific types of plans –Form M-1 for Multiple Employer Welfare Arrangement (“MEWA”) plans –404(a)(1) notices for 401(k) plan

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Common Plan Administration Errors Not following the plan document –e.g not providing matching contributions in a pension plan Plan not updated to comply with new laws –Plan must be updated on a rolling basis based on the last digit of the plan sponsor’s FEIN. –Must file notice with IRS that correction was made Not supervising or monitoring plan service providers –Investment advisors must be given benchmarks and terminated if they fall below benchmarks for too long –Plan Administrator has a duty to monitor all service providers, even if it outsources its duties

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Best Practices Organize your Benefits Team so service providers work together Keep all governing documents well organized Plan Document and investment records should be kept permanently Routinely perform new requests for proposals for service providers Have an occasional “check-up” of your Plan Documents for compliance with ERISA Ask a benefits consultant or attorney before you revise a benefit or enter into a complex transaction with your benefits Calendar notice deadlines to make sure they are met on time

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary Best Practices Purchase Fiduciary Liability Insurance to cover costs for any breaches of fiduciary duty File with the IRS and DOL when errors are caught to reduce your liability

Copyright © 2015 ES&A, Inc. All Rights Reserved Confidential and Proprietary FOR MORE INFORMATION … If you have any follow up questions, us at For access to these materials, Watch for our new website – – available later this monthwww.esandalaw.com Our next webinar will be in October! –Next topic to be determined