This document summarizes key compliance requirements for qualified retirement plans in 2017, including ERISA and Internal Revenue Code rules. It discusses fiduciary responsibilities under ERISA, such as acting prudently and for the exclusive benefit of participants. It also covers new fiduciary regulations defining investment advice, exceptions, and class exemptions. The document concludes with an overview of plan document and operational compliance requirements under the Internal Revenue Code.

1. “Seyfarth Shaw” refers to Seyfarth Shaw LLP (an Illinois limited liability partnership).
Employee Benefits in 2017:
Planning for the Year Ahead
Qualified Retirement Plan Compliance
Presentation to WEB Network
January 19, 2017
Richard G. Schwartz
Partner
Seyfarth Shaw LLP

2. Compliance
• Employee Retirement
Income Security Act
– reporting and disclosure
rules
– claims procedure
– fiduciary standards
• Internal Revenue Code – tax qualification
requirements
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3. ERISA
• Reporting & Disclosure – Form 5500
– distribution of SPD, SMM
• Claims Procedures – exhaustion of process
– venue requirements
– claims filing period
• Fiduciary – this is where all the action is!
– “Governance”
– “Process”
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4. ERISA – Allocation of Plan Responsibilities
• Settlor – the right to amend/terminate
– non-fiduciary function
• Administrative – both fiduciary & non-fiduciary roles
– day-to-day administration – non-
fiduciary function
– plan interpretation; claims appeals –
fiduciary function
• Investment – duty to select & monitor
investments – fiduciary function
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5. Fiduciary Responsibilities
• Administrative:
– plan interpretation (ex: how entry date is determined; match & vesting is
calculated);
– claims appeal (ex: final arbiter of any claim denial that is appealed);
– plan administration matters that require the exercise of discretion (ex:
experimental medical/drug treatments); and
– selection of platform provider (ex: administration and recordkeeping).
• Investment:
– selection and monitoring of investment alternatives (ex: select, monitor
investment funds in the fund lineup made available under Plan);
– selection of default investment alternative (ex: if investment direction is not
given);
– adoption of investment policy and designation of funding policy; and
– selection of platform provider (ex: as to investment lineup).
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6. Status As A Fiduciary
• A person is a fiduciary if he or she:
– is named or identified as a fiduciary in the plan documents;
– exercises any discretionary authority or discretionary control
over the management or disposition of plan assets;
– provides investment advice for a fee; or
– has any discretionary responsibility for plan administration.
• Operational exercise of authority or control resulting in fiduciary
status
– the “inadvertent” fiduciary
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7. Prudence and Exclusive Benefit – Two ERISA
Fiduciary Standards
• ERISA fiduciaries are held to the standards of:
– Prudence
 “carrying out their duties with the care, skill and prudence”
 “under the circumstances then prevailing”
 “of a prudent man acting in a like capacity and familiar with
such matters”
 “in the conduct of an enterprise of a like character and with
like aims”
• In short, a “comparable fiduciary” standard
– look to “best practice” of a similar fiduciary of a similar size
plan in a similar circumstance; not a “prudent person” or
“prudent expert” standard
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8. ERISA Fiduciary Standards (continued)
• Exclusive Benefit
– Acting for the exclusive purpose of providing benefits to plan
participants and beneficiaries and defraying the plan’s reasonable
administrative expenses
– Prohibits administrative or investment fiduciary member actions that
may present a conflict.
• As to nonqualified plans (e.g., SERP)
– top-hat plans – i.e., maintained for a select group of
management or highly compensated employees
– not subject to fiduciary provisions of ERISA
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9. ERISA Fiduciary Rules Are “Process Driven”
• ERISA prudence analysis focuses on facts and decision making
process at time of event, not based on hindsight.
• Key “process” components include:
– details of the decision making process (content and scope of
analysis); and
– establishment and adherence to internal procedures and
polices.
• A critical component is plan governance and the allocation of
plan related responsibilities.
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10. ERISA SECTION 404(c) Protection
• Participants exercise investment control over their accounts; plan fiduciaries
not liable for any losses or breaches resulting from the exercise of such
control, provided that:
– plan fiduciaries are liable for the selection and monitoring of investment
alternatives
– plan fiduciaries are responsible for the investment of any assets for which no
direction is received
• Requirements:
– broad range of investment alternatives
 ability to diversify
 choose from at least 3 core investment options (e.g., equity, fixed income,
cash equivalents)
– participants are afforded the opportunity to exercise control over account
 ability to make changes appropriate in light of market volatility
 provided with sufficient information
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11. New Fiduciary Regulations:
Investment Advice for a Fee
• Makes a “recommendation”
• To a plan, plan fiduciary, plan participant, IRA or IRA owner
• For a fee (direct or indirect)
• By a person who:
– Acknowledges fiduciary status OR
– Directs advice to a specific recipient(s) regarding the
advisability of a particular investment or management decision
regarding securities or other investment property OR
– Renders advice pursuant to an agreement, arrangement or
understanding that the advice is based on the particular
investment needs of the recipient
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12. What Is A Recommendation?
• A communication that by its context, content and presentation
could reasonably be viewed as a suggestion to take (or refrain
from taking) a particular course of action
– Objective standard
– The more individually tailored a communication the more likely
it is a recommendation
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13. What Is NOT A Recommendation?
General Communications: newsletters, talk shows, public
speeches, general marketing materials, general market data
• Platform Providers: (Record-Keepers and TPAs)
– Actions:
 Marketing platform without regard to plan needs and with written
notice
 Identifying specific DIAs (1) based on objective criteria set by plan
fiduciary, or (2) in response to RFP – both with written notice
 Providing objective financial data
– Recipients: plans other than IRAs or brokerage windows
– Remember: plan fiduciaries must prudently select and monitor
platform providers
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14. What is NOT a Recommendation (cont.)
Investment Education:
• Four Types (at least) of Non-Fiduciary Education
– Plan Information: DIA objectives and characteristics
– General Information: standard concepts (diversification, inflation, risk /
return), general strategies, historical asset class returns, assessing risk
tolerance
– Asset Allocation Models: hypothetical allocations based on generally
accepted investment theories
– Interactive Materials: worksheets for assessing retirement needs and impact
of asset allocations
• Specific DIAs: May be used in asset allocation models and interactive
materials for plans other than IRAs and brokerage windows if:
– Identifies all similar DIAs, and
– Includes statement on where to find further information
• Remember: plan fiduciaries must monitor asset allocation models and
interactive materials to confirm that they are fair and unbiased
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15. Exceptions to Definition of Recommendation
Employees: (Plans, Sponsors / Affiliates, Fiduciaries)
• Provides investment advice to non-participant (e.g., fiduciary) for
no cost except normal compensation, or
• Provides investment advice to participant for no cost except
normal compensation, and:
– Job description does NOT involve provision of investment
advice, and
– Not registered or licensed (and advice does not require it)
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16. Exceptions to Definition of Recommendation (cont.)
Plan Fiduciaries with Financial Expertise:
– Context: arms-length transaction
– Purpose: higher standard not imposed if fiduciary is sophisticated and
knows counterparty is not required to act in plan’s best interest
– Requirements:
 Fiduciary independent of counterparty;
 Counterparty knows or reasonably believes fiduciary is a bank, insurer,
registered investment adviser, broker-dealer or manages ≥ $50 million;
 Counterparty knows or reasonably believes fiduciary is capable of
evaluating risks in general and in respect of the particular transaction;
 Counterparty informs fiduciary it is not impartial; and
 Counterparty does not receive fee directly from plan / IRA in transaction.
– Note: representations do not have to be on transaction basis
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17. New Class Exemptions ̶ Best Interest Contract
Exemption
• Purpose: To allow financial institutions and advisers to receive
different types of compensation that would otherwise give rise to
a prohibited transaction as a result of advice given to certain
retirement investors.
• Complying with Exemption:
– Writing
 Contract
 Fiduciary Acknowledgment
 Impartial Conduct Standards
 Warranties
 Disclosures
– Notifying DOL
– Recordkeeping
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18. Impact of New Definition on Plan Fiduciaries
• More Indirect – Not as Substantive as Upon Financial Firms
• Fiduciary status of service providers
– Investment Consultant – now must acknowledge fiduciary
status
– Other Service Providers – consider whether or not a fiduciary
• Selection of service provider a fiduciary function
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19. Fiduciary Litigation
• Two general themes
– investment results / stock drop
– investment & administrative fees
 revenue-sharing
 share classes
 fee discounts – did anyone ask?
• Best defense: Well-documented process
• Tatum v. RJR Pension Investment Committee:
– Committee could not show that they conducted a prudent
review in eliminating Nabisco stock from plan; court applied a
“would have” standard for the Committee – the action was not
only permissible, but was the best action
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20. Considerations
• Statute of Limitations – duty to monitor beyond the 6-year
ERISA SOL
• Documentation of Process – if a prudent process is demonstrated,
all that need be shown is that the
challenged action was permissible
– RFP – how often?
• Attorney Fees –
Settlement to Avoid Trial
– in 2015, 3 cases settled for in
excess of $220 mil in “losses”
recouped by plans & $80 mil in
attorney fees
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• Plaintiff Counsel Look for
Weak Links
– Defense is best offense

21. Considerations (continued)
• Novant
• Boeing
• Nationwide
• Ameriprise
• Anthem
• Chevron
• CVS
• Delta Airlines
• American Airlines
• Verizon
• Starwood
• Yale
• NYU
• MIT
• Duke
• Vanderbilt
• USC
• Cornell
• Columbia
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Universities

22. Claims Litigation
• Strict adherence to ERISA claims procedures
• Impose claim filing period limits
• Restrict venue
• Require exhaustion of claims procedure before returning to court
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23. Other Trends – “De-Risking”
• Lump-sum Windows – 3rd party risk transfers
• Both designed to get
participants out of plan
– PBGC premiums
– transfer of longevity risk to participants /
annuity provider
– accounting gains – shedding more
liability than assets being paid out (less
so after 2016 due to new mortality tables
and rising interest rate environment)
• Fiduciary considerations – Remember importance of allocation
of settlor and fiduciary
responsibilities
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24. Internal Revenue Code
• Plan document compliance
• Operational compliance
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25. Other DOL Considerations
• Plan Asset Violations – timely remittance of salary withholdings
• Form 5500 & audit report
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26. Plan Document Compliance
• Goodbye to the determination letter program!
– Cycle A
– initial letters
– plan termination
– other circumstances?
 IRS resources
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27. Operational Compliance
• Mistakes much more common
• Self-correct or seek IRS approval?
• Revenue Procedure 2016-51
– VCP
– self-correction – significant & insignificant mistakes
– Audit CAP – sanction to consider maximum penalty amount
• Additional flexibility if mistakes fixed quickly
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28. Common Mistakes
• Definition of “Compensation”
• Failure to timely offer opportunity to participate
– treatment of different categories of employees
• Calculation mistakes
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29. Concerns
• When switching providers
• When restating plan document – prototype & volume submitter
plans
• How far back to look?
• Do accurate records exist?
• Tracking down former employees
• Multiple failures
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30. Thank You
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