ERISA Advisory - Labor Department Issues Enforcement Guidelines Dealing With The Receipt Of Gifts And Gratuities By Plan Fiduciaries

There has been growing uncertainty in recent years regarding the circumstances under which the Department of Labor (“DOL”) would treat a plan fiduciary’s receipt of gifts or gratuities from a third party as a violation of ERISA § 406(b)(3)’s prohibition against the receipt of “kickbacks” by plan fiduciaries.  In March 2007, the Director of Enforcement for DOL’s Employee Benefits Security Administration (“EBSA”) stated publicly that plan fiduciaries “need to be very, very careful under ERISA about accepting any gifts or gratuities from a service provider, even items of modest value,” and that “every one of our regions will be looking at this issue.”  Several months later, in publishing its revised Form 5500 Annual Report, EBSA cautioned that “gifts and gratuities of any amount paid to or received by plan fiduciaries may violate ERISA and give rise to civil liabilities and criminal penalties.”  See Notice of Adoption of Revisions to Annual Return/Report Forms, 72 Fed. Reg. 64731, 64743 (Nov. 16, 2007) (emphasis added).

In the wake of the widespread uncertainty created by these remarks, EBSA today issued enforcement guidance to its investigators/auditors clarifying the circumstances under which it will treat a plan fiduciary’s acceptance of meals, gifts, entertainment or expenses associated with educational conferences from a party dealing with the plan as a violation of ERISA § 406(b)(3).  This guidance, reproduced in full below, is found  in Chapter 48 of EBSA’s Enforcement Manual, entitled Fiduciary Investigations Program: 

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.

EBSA’s new enforcement guidance should be helpful to plan fiduciaries in determining the circumstances under which the receipt of gifts and gratuities from a third party will be treated as a violation of ERISA § 406(b)(3).  Questions about these guidelines may be directed to Melanie Nussdorf (202.429.3009), Eric Serron (202.429.6470) or Patrick Menasco (202.429.6215).