Chapter 12- Fiduciary Responsibility (4 questions)

4 affirmative duties of plan fiduciaries involved in the investment of plan assets Johnny DEPP stars in: The Fiduciary

-exclusive benefit rule -prudence requirement -diversification requirement -plan document

ROLES of fiduciaries

1. Having discretionary authority in the administration of the plan 2. Exercising control over the management of the plan or disposition of the plan's assets 3. Rendering investment advice for a fee

what is the excise tax for prohibited transaction

15%

salary deferrals must be contributed within a reasonable time frame but no later than _____ day of the following month small plans (less than 100 people) have ____ business days safe harbor

15th 7

One of the requirements for obtaining relief under the ERISA 404(c) individual account plan exception is that participants must be given the option to choose from among _______ different investment options.

3

exemptions from 'fiduciary'

403b plans with no employer contributions, government and church plans, plans only covering owners/spouses

a provision of ERISA that relieves fiduciaries from liability for the investment decisions of plan participants

ERISA Sec. 404(c) (individual account plan exception)

(T/F) The employer's decision to terminate a qualified plan has to satisfy a fiduciary standard.

False Certain decisions by the employer like the decision to set up or terminate a plan are considered settlor functions not subject to scrutiny under the fiduciary rules.

is brokerage a fiduciary?

NOT brokerage role unless they take on role of making investment decisions

(T/F) A plan that has lent money to the sponsoring company has most likely engaged in a prohibited transaction.

True

(T/F) Fiduciaries can be liable for breaches or co-fiduciaries if they actively participate in the behavior or tries to conceal or even just has knowledge of the breach.

True

(T/F) Fiduciaries who do not meet their obligations are personally liable for any losses and profits.

True

(T/F) Once a participant in a 401(k) plan has earned an amount subject to a salary deferral election it is treated as a plan asset, and has to be segregated from the employer's assets within a reasonable period of time.

True

(T/F) Participants must be notified that plan fiduciaries are seeking the fiduciary relief provided in ERISA 404(c).

True

prohibited transaction

disallowed dealings between the plan and a party-in-interest

an affirmative fiduciary duty that requires the fiduciary to diversify assets to guard against large losses

diversification

a rule that prevents misuse of the retirement plan. A fiduciary is required to discharge all duties solely in the interest of plan participants and their beneficiaries.

exclusive benefit rule

A trustee who invests plan assets in an excellent company that is also a client of the plan's sponsor may have violated the _________________.

exclusive-benefit rule

Typically sponsoring company, plan trustee, investment managers, and officers of the company who participate in the selection of the trustees and/or investment managers

fiduciaries

Fiduciary

in the retirement plan context, a fiduciary is a person or corporation that exercises any discretionary authority or control over the management of the plan or plan assets, renders investment advice for a fee, or has any discretionary authority or responsibility inthe administration of the plan. Fiduciaries are held to a specific standard of care and can be personally liable for losses.

To protect employees who act as fiduciaries, employees can purchase _________ for the employees or indemnify them from losses in their role as fiduciary

liability insurance

requirements to meet ERISA Sec. 404(c)

o Broad range of investment alternatives (as least three core options with different return and risk) § Employer stock CAN be an option but not 1 of the 3 core options o Diversification- look through investments (mutual funds, pooled separated accounts, guaranteed investment contracts) § Opportunity to change investments appropriate in light of market volatility (at least quarterly) o Plan must provide specific information and other info upon request. Need to let know participants they are seeking the 404c 'status' o MUST get prospectus

Parties-in-interest include

plan fiduciaries plan counsels persons providing services to the plan employers connected with the plan employees in the plan employee organizations whose members are covered by the plan relatives of any of the above shareholders officers directors who have a 10-percent-or-more ownership interest in any of the above.

Even if the plan conforms with ERISA 404(c) regulations, the fiduciaries are still responsible for ensuring that participants do not engage in ______________.

prohibited transactions

a rule that states a plan fiduciary must perform his or her functions as a prudent person would perform them under like circumstances or else legal liability will be incurred. A fiduciary must use the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent fiduciary acting in like capacity would use.

prudence requirement

the default investment option in a participant directed account plan for those who do not make an affirmative investment election

qualified default investment alternative

participants must be given the opportunity to change investments appropriate in light of market volatility at least ____

quarterly

Employer is almost always a fiduciary, but some decisions are considered business decisions not governed by ERISA

the decisions to establish a plan, to include certain features in a plan, to amend a plan, and to terminate a plan are business decisions not governed by ERISA.

In order to avoid conflicts of interest or self dealing, investments involving parties close to the plan are prohibited from:

· Prohibit any sale, exchange, or leasing of property between the plan and party in interest o Example: sales of real estate owned by the ABC plan to the wife of the treasurer of the ABC company · Can't invest in more than 10% of employer securities

prohibited transaction exemptions

· Statutory- loans, ESOP loans, reasonable fees to third party service providers · Administrative fees · Individual (PTE) as long as administrative feedable, is in the interest in plan and its participants, and protects the participants o Have to obtain a Prohibited Transaction Exemption from the DOL · Investment Advice- allows qualified fiduciary advisors to give investment advice as long as the fees do not vary based on investment option or computer model is used