2013 JCEB Q&As Offer Nonbinding DOL Responses on Prohibited Transactions and Service Provider Required Disclosure Rules | Practical Law

2013 JCEB Q&As Offer Nonbinding DOL Responses on Prohibited Transactions and Service Provider Required Disclosure Rules | Practical Law

The Joint Committee on Employee Benefits (JCEB) of the American Bar Association (ABA) has issued Q&As containing nonbinding responses from Department of Labor (DOL) staff to seven questions. The Q&As address various employee benefits issues, including prohibited transactions and the service provider disclosure rules.

2013 JCEB Q&As Offer Nonbinding DOL Responses on Prohibited Transactions and Service Provider Required Disclosure Rules

by Practical Law Employee Benefits & Executive Compensation
Published on 31 Oct 2013 • USA (National/Federal)
The Joint Committee on Employee Benefits (JCEB) of the American Bar Association (ABA) has issued Q&As containing nonbinding responses from Department of Labor (DOL) staff to seven questions. The Q&As address various employee benefits issues, including prohibited transactions and the service provider disclosure rules.
The Joint Committee on Employee Benefits (JCEB) of the American Bar Association recently issued Q&As containing nonbinding responses from the DOL to seven questions. The Q&As, compiled by the JCEB, are based on discussions between JCEB and DOL representatives at their 2013 Joint Committee of Employee Benefits Technical Session, held on May 8, 2013. Responses to the questions are unofficial and nonbinding. Topics addressed include (but are not limited to):
  • Prohibited transactions for benefit plan service providers.
  • The disclosure requirements for plan service providers under the new regulations.

Prohibited Transactions for Plan Service Providers

DOL representatives were asked whether a service provider engages in a prohibited transaction under ERISA when it makes "charitable" contributions to a non-profit client. DOL representatives explained that a service provider that serves an employee benefit plan of a non-profit charity would not violate ERISA merely by making a tax-deductible contribution to the non-profit entity.
However, according to the DOL representatives, if a plan fiduciary conditioned its decision to hire the service provider on the service provider agreeing to make tax-deductible contributions to the non-profit entity, the fiduciary would violate ERISA's:
  • Prohibited transaction rules involving transactions with parties-in-interest.
  • Fiduciary self-dealing prohibited transaction rules.
ERISA's prohibited transaction rules involving fiduciary self-dealing would also be violated if the fiduciary accepted a contribution offered by a service provider as an inducement to the service provider being retained by the plan.
The DOL representatives declined to address when, specifically, a service provider's charitable contribution is made in consideration of the plan's decision to hire the provider, because that is a fact-specific inquiry.
Furthermore, the DOL representatives noted that it may be a crime (under the statute involving bribery affecting employee benefit plans) for:
  • A plan fiduciary to solicit, receive or agree to receive money or a thing of value with the intent to be influenced with respect to its actions, decisions or duties relating to the plan.
  • A service provider to pay, offer or promise to pay money or provide a thing of value, whether direct or indirect, with the intent of influencing a fiduciary's plan-related actions or decisions.

Disclosure Requirements for Service Providers

Under the expanded reporting requirements of Form 5500, Schedule C, plans must report detailed information about service provider fees and related compensation. This includes a section requesting information about service providers who fail or refuse to provide information necessary to complete Schedule C. Other Form 5500 schedules address the reporting of prohibited transactions.
The DOL representatives were asked whether employers should not report a prohibited transaction on Form 5500 or file a Form 5330 to pay excise taxes when service providers fail to provide required information, because:
  • There are still many employers who do not fully understand their responsibilities and have failed to seek required information or take other required actions, such as notifying the DOL of the failure or firing the provider.
  • Employers may only now be receiving competent advice regarding their obligations.
  • The DOL indicated that it would take a lenient enforcement approach regarding the rules for the first year.
In their response, DOL representatives explained that:
  • When a covered service provider, acting in good faith and with reasonable diligence, makes an error or omission in disclosing the required information, the regulations permit the provider to correct that error or omission as soon as practical, but no later than 30 days from the date the covered service provider knows of the error or omission. The error or omission is not a prohibited transaction if the conditions of the regulations are satisfied.
  • The regulations contain a prohibited transaction class exemption for situations where a responsible plan fiduciary discovers an error in disclosures. While the class exemption provides relief for an innocent fiduciary for its part in a prohibited transaction, it does not provide relief for a prohibited transaction committed by a service provider who does not comply with the statutory exemption under ERISA Section 408(b)(2). Under these circumstances, there would still be a prohibited transaction to report on Form 5500.
DOL representatives also indicated that, consistent with DOL Field Assistance Bulletin 2012-02R (FAB):
  • The DOL will consider whether covered service providers and plan administrators have acted in good faith based on a reasonable interpretation of the regulations.
  • If covered service providers and plan administrators have acted in good faith based on this reasonable interpretation, enforcement action would generally be unnecessary if the provider or administrator, as applicable, establishes a plan for complying with the FAB's requirements going forward.
The DOL also indicated that the FAB does not relieve plan administrators from the obligation to report prohibited transactions on Form 5500.

Practical Impact

Although the DOL representatives did not provide answers for several of the questions presented (including a question addressing summary of benefit and coverage penalties and multiemployer plans), those questions for which the agency did provide its informal views may be instructive for plan administrators and their advisors. In particular, given the potentially significant errors for filing incomplete or inaccurate Form 5500s, in addition to other consequences, the representatives' response to the question on service provider disclosures should be of particular interest to plan fiduciaries.