PLANSPONSOR - February/March 2019 - 62

ERISA EXAMINATION
Prohibited
Transactions
A Rolex watch vs. a phone charger
" W
hat a nice Rolex watch! " " Thanks, our 401(k) plan
investment adviser gave it to me, " responded the
retirement plan committee member.
Hopefully, all sorts of bells and whistles went off in your
head as you read this.
The Employee Retirement Income Security Act (ERISA)
fiduciary rules include certain " prohibited transactions "
designed to protect plan assets. One of these rules provides
that a fiduciary may 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. "
Receiving gifts from a plan service provider that the committee
is responsible for selecting falls into this prohibition.
To start with, a plan
fiduciary, other than the one
attending the conference,
must give advance approval
of the expense in writing.
But what if it's not as extreme as a Rolex? What if the investment
adviser provided his latest marketing swag-e.g., adviserlabeled
hand sanitizer or portable chargers? (Come on, admit
you love them!)
In its published enforcement guidelines, the Department
of Labor (DOL) recognizes that some things may be small
enough not to cause a fiduciary breach or prohibited transaction.
Specifically, the policy provides that DOL investigators should
treat it as insubstantial and not an apparent prohibited transaction
if a plan fiduciary receives gifts, gratuities or other consideration
as long as the aggregate annual value received from any
one individual or entity is less than $250.
So, go ahead and let the adviser bring in Subway sandwiches
for quarterly committee meetings, but let's skip the steak and
lobster dinners. Keep in mind that this is an annual aggregate
amount. Additionally, while the guidelines do not discuss
specific items, they do refer to the " value " of items, suggesting
that receipt of cash is likely a problem at any level.
The DOL's guidance also addresses when a service provider
pays or reimburses a plan for a plan representative's attendance
at an educational conference. The guidance provides that a DOL
investigator should not treat such reimbursement as a prohibited
transaction if certain requirements are met. To start with,
a plan fiduciary, other than the one attending the conference,
must give advance approval of the expense in writing. This
approval should be based on the reimbursement meeting all of
the following criteria:
* The plan's payment of the educational expense is prudent;
* The expense is consistent with a written policy designed
to prevent abuse;
* The expense, or conference, has a reasonable relationship
to the duties of the plan representative; and
* The expense is reasonable in light of the benefits to the
plan and unlikely to compromise the representative's ability to
fairly serve the plan.
As noted in the second requirement above, reimbursement
should be consistent with a written plan policy or provision
designed to prevent abuse. In fact, the enforcement guidelines
direct the DOL investigator to determine whether the fiduciary
or plan has a written policy or plan addressing the receipt of
services or items from plan service providers.
Based on these enforcement guidelines, committees should
adopt written policies designed to be at least as restrictive as the
DOL's guidelines. We have seen policies that prohibit receipt of
any consideration from plan service providers, even small giveaway
items. But be careful not to be too rigid as well, or you could
create a fiduciary breach that wouldn't otherwise exist.
As with our comments on investment policy statements
(IPSs), it may be worse to have one and not follow it than to not
have one at all. Instead, drafting a policy consistent with the
DOL's enforcement guidelines and making sure committee
members are aware of the policy and its purpose can help avoid
prohibited transactions. Before going to a recordkeeper conference
or adviser-sponsored dinner, committee members should
think about whether the plan has a policy on gifts and reimbursements
and whether what they are about to receive meets
the policy's guidelines.
Summer Conley is a partner in the Los Angeles office of
Drinker Biddle & Reath LLP. Michael Rosenbaum is a partner
in the firm's Chicago office.
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