DEPARTMENT OF LABOR PUBLISHES GUIDANCE FOR FIDUCIARIES

Prepared By: Debra L. Mackey, Esq.

Burr & Forman LLP

Birmingham, Alabama

September 1, 2005

The Department of Labor’s Employee Benefit Security Administration (EBSA) has undertaken a campaign to improve the security of employment based health and retirement benefits by educating employers and service providers on fiduciary responsibilities under ERISA. To this end, a number of resources are available through the EBSA website, which is www.dol.gov/ebsa. The publications discussed below can be found on the website by clicking “Fiduciary Education” in the box titled “Employers, Service Providers, Fiduciaries, Plan Sponsors” and then scrolling down to “Publications.” Other employer oriented guidance can be found under “Compliance Assistance.” For example, DOL is hosting a free seminar in Atlanta on December 7-8, 2005: HIPAA and Other Health Benefit Laws.

This outline will touch on some key points from six different EBSA publications, and explain how employers can use these resources to help them carry out various fiduciary responsibilities with respect to employee benefit plans. Although most of the publications are directed toward retirement plans, much of the information applies to any type of plan.

MEETING YOUR FIDUCIARY RESPONSIBILITIES

This publication provides an overview of the basic fiduciary responsibilities that apply to retirement plans. It contains information that will help identify who is a fiduciary and what it means to be a fiduciary. Some of the points addressed include:

· Fiduciary status is based on the functions performed, not just title.

§ Discretion to administer/manage a plan

§ Control over plan assets (without regard to discretion)

· A plan must have at least one fiduciary - the named fiduciary. Usually will have several: Plan Administrator/Administrative Committee, Trustee, Investment Advisor, anyone exercising discretion over administration (e.g., HR Manager), persons who appoint other fiduciaries.

· Business decisions (settlor functions) versus fiduciary decisions

· Act solely in interest of participants/beneficiaries

· Prudence

§ If lack expertise, hire professional with expertise

§ Procedural prudence

§ Be familiar with plan document and follow it

§ Duty to monitor fiduciaries and service providers

· Personal liability

· Co-fiduciary liability

· Timely depositing employee contributions

· Educate internal fiduciaries on their roles and responsibilities

· Fees

· Investment education versus investment advice

· Prohibited transactions, such as self-dealing and transactions with parties in interest

· Reporting and disclosure

§ 5500

§ SPD

§ SMM

§ SAR

· Voluntary Fiduciary Correction Program

· Delinquent Filer Voluntary Compliance Program

The publication also provides a list of ten questions to help fiduciaries ensure that fiduciary obligations are met. EBSA describes these as a “starting point.” At a minimum, employers should be able to answer each of these questions with respect to each retirement plan it sponsors. If it can’t, or is concerned that its “answers” are not what they should be, the employer can use the gaps in its answers to help it get on the right track. A sampling of the questions follows:

· Have you identified your plan fiduciaries, and are they clear about the extent of their fiduciary responsibilities?

· If participants make their own investment decisions, have you provided sufficient information for them to exercise control in making those decisions?

· Are you aware of the schedule to deposit participants’ contributions in the plan and have you made sure that this complies with the law?

SELECTING AND MONITORING PENSION CONSULTANTS/TIPS FOR PLAN FIDUCIARIES

This publication is a result of a May 2005 report issued by the U.S. Securities and Exchange Commission addressing whether pension consultants are fully disclosing potential conflicts of interest when they provide the following services to plan fiduciaries: assist with setting investment objectives, asset allocation, selecting investment managers and fund options, tracking investment performance, and selecting other service providers.

The potential for conflicts of interest arises because many of the consultants also offer (directly or through affiliated companies) a variety of products/services to investment managers or provide brokerage and investment management services. The SEC concluded that alliances between consultants and investment managers creates “serious” potential conflicts of interest.

Together the DOL and SEC developed ten questions designed to assist plan fiduciaries in determining how objective the consultant’s advice really is. Anyone who uses a consultant to assist them with the services described above should carefully review the questions and follow-up with their consultant as necessary. Following each question is a brief explanation that puts the question into context. Two of them are reproduced below:

· Do you or a related company have relationships with money managers that you recommend, consider for recommendation, or otherwise mention to the plan? If so, describe those relationships.

§ When pension consultants have alliances or financial or other relationships with money managers or other service providers the potential for material conflicts of interest increases depending on the extent of the relationships. Knowing what relationships, if any, your pension consultant has with money managers, may help you assess the objectivity of the advice the consultant provides.

· If you are hired, will you acknowledge in writing that you have a fiduciary obligation as an investment advisor to the plan while providing the consulting services we are seeking?

§ All investment advisors (whether registered with the SEC or not) owe their advisory clients a fiduciary duty. Among other things, this means that advisors must disclose to their clients information about material conflicts of interest.

SELECTING AN AUDITOR FOR YOUR EMPLOYEE BENEFIT PLAN

This question and answer publication addresses the process of hiring someone to conduct the audit that may be required as part of a plan’s Form 5500 filing. It is designed to assist with both the selection of the auditor as well as reviewing the auditor’s report. One of the ten questions/answers is reproduced below:

· Is a plan auditor required to be independent?

§ Auditors of employee benefit plans should not have any financial interests in the plan or the plan sponsor that would affect their ability to render an objective, unbiased opinion about the financial condition of the plan.

UNDERSTANDING RETIREMENT PLAN FEES AND EXPENSES

This publication is designed to help fiduciaries better understand the fees/expenses charged by service providers which in turn helps the fiduciary select and monitor the provider. Keep in mind that ERISA requires fees to be “reasonable.” Although largely directed toward 401(k) plans, the information is useful for any type of plan. It provides a summary of the different types of fees/expenses and the ways they may be structured. Fees/expenses are discussed in three broad categories: plan administration, investments, and transaction fees charged to participants. For example, it contains a good overview of the variety of investment related fees, such as sales loads, commissions, investment advisory fees, load fees, and 12B-1 fees.

The primary benefit of this publication is self-education, to become familiar with the “lingo” service providers use. EBSA has published a related piece on 401(k) fee disclosure that was put together by joint efforts of the American Bankers Association, American Council of Life Insurance, and the Investment Company Institute. While service providers are not required to use the form, a fiduciary may find it helpful to request that potential service providers use the form to disclose its fees so that the fiduciary can better compare competing providers.

TIPS FOR SELECTING AND MONITORING SERVICE PROVIDERS FOR YOUR EMPLOYEE BENEFIT PLAN

The twelve tips provided in this publication are largely matters of common sense. Nonetheless, they serve as a good reminder to those involved in hiring and monitoring service providers of what they should consider during that process. A few of these tips are:

· Present each prospective service provider identical and complete information regarding the needs of your plan. You may want to get formal bids from those providers that seem best suited to your needs.

· Ask each prospective provider to be specific about which services are covered for the estimated fees and which are not. Compare the information you receive, including fees and expenses to be charged by the various providers for similar services. Note that plan fiduciaries are not always required to pick the least costly provider. Cost is only one factor to be considered in selecting a service provider. More information on pension plan fees and expenses can be found in Understanding Retirement Plan Fees and Expenses and the 401(k) Fee Disclosure Form, located at www.dol.gov/ebsa.

· Prepare a written record for the process you followed in reviewing potential service providers and the reasons for your selection of a particular provider. This record may be helpful in answering any future questions that may arise regarding your selection.

REPORTING AND DISCLOSURE GUIDE FOR EMPLOYEE BENEFIT PLANS

Sponsoring an employee benefit plan brings with it many reporting and disclosure obligations. Reporting refers to information that must be provided to government agencies. Disclosure refers to information that must be provided to plan participants and beneficiaries. This publication is largely in chart form, providing a description of each document that serves as the form of the report or disclosure, along with other helpful information directly related to that document - such as the information to be disclosed, to whom it is to be disclosed, and when it must be disclosed. Because there are so many different types of reporting and disclosure obligations, the publication is a handy reference guide. There is a section on Form 5500 and the various schedules that may be required as well.