Gifts and Entertainment Guidance

The U.S. Department of Labor (“DOL”) today released guidance, in the form of an addition to the “Fiduciary Investigations Program” portion of its Enforcement Manual, concerning gifts and entertainment.

Previously, the Enforcement Manual did not specifically address gift and entertainment issues. Under Section 406(b)(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), a fiduciary of a plan is not permitted to “receive any consideration” for his own account from any party dealing with a plan “in connection with a transaction involving” the assets of the plan. If a fiduciary of a plan is furnished meals, gifts or entertainment, or is reimbursed for expenses associated with educational conferences – e.g., by a person who is or would like to be service provider to the plan - an issue would arise under Section 406(b)(3). The new guidance is copied below.

Service providers and fiduciaries should note the following.

1. There is no statutory or regulatory de minimis exception from the prohibition of Section 406(b)(3). Nevertheless, the new guidance indicates that, as an enforcement matter, the DOL will treat non-cash benefits, as well as certain reimbursements, with an annual aggregate value of less than $250, as “insubstantial.” It should be noted that the DOL recently established different de minimis standards for purposes of reporting by plan administrators on Schedule C of Form 5500. Those rules may require reporting of gifts that have an aggregate annual value in excess of $100. In addition, the disclosure requirements under related recently proposed regulations under Section 408(b)(2) of ERISA provide no de minimis exception.

2. The new guidance refers to written policies of fiduciaries governing the receipt of gifts, entertainment or similar items. Such policies are not required by law. However, we believe that it is prudent for fiduciaries to establish such policies and, once established, to adhere strictly to them.

3. The new guidance says that reimbursements of expenses in connection with educational conferences should not be treated as a violation of Section 406(b)(3), subject to certain conditions. There are two noteworthy items relevant to that portion of the guidance:

a. First, the guidance requires a written determination by the fiduciary that the conditions have been met. Care should be taken to document the determination in each case and to preserve that documentation.

b. Second, note that the exception relates to reimbursement of a plan, and not to direct reimbursement of a plan fiduciary or payment on behalf of a plan fiduciary. In other words, the exception is available, subject to the satisfaction of the stated conditions, if a plan reimburses a fiduciary for expenses incurred by the fiduciary in attending an educational conference and a service provider (or another person wishing to bear the expense) in turn reimburses the plan for those expenses. In effect, this ensures that the plan will have notice of the reimbursement and requires that the expense be one that another fiduciary of the plan determines is reasonable as a plan expense. This approach puts pressure on the ability of a service provider (or other person) to pay for expenses that may be viewed as incidental to the educational purpose of the conference.

Please call any of the partners or counsel listed in the Employee Benefits section of this website to discuss the foregoing.

Text of New Guidance in the Employment Manual

  12. Fiduciary Violations Involving Gifts and Gratuities. Investigations may disclose possible fiduciary violations involving a plan fiduciary’s acceptance, from a party dealing with the plan, of consideration such as meals, gifts, entertainment, or expenses associated with educational conferences. In such cases, the Investigator/Auditor should determine whether the facts support an allegation that the receipt of gifts, gratuities, or other consideration were for the fiduciary’s personal account and received in connection with a transaction or transactions involving the assets of the plan as required for a violation of ERISA §406(b)(3). The Investigator/Auditor should also determine whether the fiduciary or the plan maintained a reasonable written policy or plan provision governing the receipt of items or services from parties dealing with the plan and whether the fiduciary adhered to that policy.

Further, for enforcement purposes only, the Investigator/Auditor generally should adhere to the following guidelines:

(1) The Investigator/Auditor should treat as insubstantial, and not as an apparent violation of ERISA § 406(b)(3), the receipt by a fiduciary (including his or her relatives) of the following items or services from any one individual or entity (including any employee, affiliate, or other related party) as long as their aggregate annual value is less than $250 and their receipt does not violate any plan policy or provision: (a) gifts, gratuities, meals, entertainment, or other consideration (other than cash or cash equivalents) and (b) reimbursement of expenses associated with educational conferences.

(2) The Investigator/Auditor should not treat the reimbursement to a plan of expenses associated with a plan representative’s attendance at an educational conference as a violation of ERISA § 406(b)(3) if a plan fiduciary reasonably determined, in advance and without regard to whether such expenses will be reimbursed, that (a) the plan’s payment of educational expenses in the first instance was prudent, (b) the expenses were consistent with a written plan policy or provision designed to prevent abuse, (c) the conference had a reasonable relationship to the duties of the attending plan representative, and (d) the expenses for attendance were reasonable in light of the benefits afforded to the plan by such attendance and unlikely to compromise the plan representative’s ability to carry out his or her duties faithfully in accordance with ERISA. The fiduciary’s determination should be in writing.