Regulatory Considerations

Question 1

ERISA

Answer 1

• forbids discrimination in favor of the “prohibited group” of highly compensated or supervisory employees and owners
• sets vesting schedules
• requires adequate funding so that pensions do not go bankrupt.

Question 2

Department of Labor Regulations

Answer 2

• polices the investment of plan assets and the actions of those in charge of administering plans, and it shares with the IRS the oversight of prohibited transactions
• summary plan descriptions must be given to all plan participants within 90 days of their becoming eligible to join the plan.

Question 3

Fiduciary

Answer 3

• exercises any discretionary authority or control over the management of the plan
• exercises any authority or control over the management or disposition of the plan’s assets
• offers investment advice for a fee or other compensation, with respect to plan funds or property
• has any discretionary authority or responsibility in the plan’s administration.

Question 4

Fiduciary Obligations

Answer 4

must act solely in the interest of the participants and beneficiaries

• must act for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan.
• must act with care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in conduct of an enterprise of a like charter with like aims.
• must diversify assets
• must act in accordance with the plan document and instruments governing the plan
• ensure that fees and expenses paid are reasonable

Question 5

Prohibited Transactions

Answer 5

there are six transactions between a retirement plan trust and a disqualified party which are prohibited:

• sale, exchange, or leasing of property
• lending money or extending credit
• furnishing goods, services, or facilities
• transfer to or use of plan assets by a disqualified person
• plan fiduciaries dealing with plan income or plan assets for their own interests
• a plan fiduciary receiving consideration for his or her own account from a party in a plan transaction which involves plan income or plan assets

Question 6

exempt transactions

Answer 6

• receiving benefits under the plan terms
• distributing plan assets according to the plan
• making nondiscriminatory loans to participants
• loans to fund an esop
• purchasing or selling employer securities for an individual account plan
• providing office space or services to the plan for reasonable compensation
• providing qualified investment advice to plan participants and beneficiaries

Question 7

Paties-in-Interest or Disqualified parties

Answer 7

• a plan fiduciary
• any person providing services to the plan
• an employer or employee organization
• an owner, direct or indirect, of 50% or more of the emoployer
• a member of the family of any person listed above
• a corporation, partnership, estate, or trust that is 50% owned by someone listed above
• an officer, director, 10% or more shareholder, highly compensated employee, or a 10% or more partner or joint venture partner listed above.

Question 8

Penalty Tax

Answer 8

for each prohibited transaction there is a penalty tax of 15% of the amount involved.
-an additional 100% tax is imposed if the transaction is not corrected within the required time

Question 9

Summary Plan Descriptions

Answer 9

• must be sent be given to participants 120 cays after the plan is established or within 90 days of an employee entering a plan
• benefit statements must be sent to plan participants at least annually or quarterly for any plan participant who directs the investments.

Question 10

Non-Qualified Plans

Answer 10

-within 60 days of plan adoption the employer must send a letter to the DOL

Question 11

BIC Exemption

Answer 11

• the advice must be in the best interest of the client
• the prudent man standard must be met
• the compensation earned must be reasonable
• the advisor may not make any misleading statements
• additional operational rules apply concerning compliance policies, disclosures, and use of written contracts