service provider compensation – are there new limits? april 9, 2008 lisa j. bleier

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Service Provider Service Provider Compensation – Are Compensation – Are There New Limits?There New Limits?

April 9, 2008April 9, 2008

Lisa J. BleierCenter for Securities, Trusts & Investments

American Bankers [email protected]



• ERISA dictates the rules for the conduct of fiduciaries

• Along with these rules are certain prohibited transactions

• On top of the prohibited transactions, are exemptions.



Prohibited Transactions

ERISA Sec. 406(b)(3):

“A fiduciary with respect to a plan shall not receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.”



What does 406(b)(3) mean?

• It is a prohibited transaction for there to be a transaction between a plan and a fiduciary, unless specifically allowed – i.e. a PTE

• What is “consideration”, “personal account”? “in connection with”?



In a Nutshell

• Gifts and Entertainment is where the DOL is focused– Golf outing– Nice dinner– Training seminar– Motorcycle?– Boat?



What is New?

Is there a proposed change to the law? No

What has changed?



What is New?

• Comments of Virginia Smith, DOL Office of Enforcement

• Activities of OLMS– Revised LM-10– Revised LM-30– FAQs



Comments from the DOL

Virginia Smith, Director of Enforcement, EBSA, “Fiduciaries must be very careful about accepting any gift or gratuity from a service provider, even items of modest value.”



What are LM-10/LM-30?

• The Forms that must completed under the Labor Management Reporting and Disclosure Act of 1959

• LM-30 – filed by the union officer or employee

• LM-10 – filed by the employers and service providers



What are LM-10/LM-30?

• Must report any payment or loan, direct or indirect, of money or other things of value given to any union, union official, agent or employee

• There are certain exceptions



LM-10/LM-30 Exceptions in the FAQs

• De minimis of aggregate $250• Exception for widely-attended

events• Bank exception



LM-10/LM-30

• Creates a paper trail

• Helps EBSA target enforcement



Questions to ask before making a payment or receiving a payment

• Is it permissible? Look to ERISA rules

• If a union client, is it reportable? Look to LMRDA



But what does this have to do with service providers who do not service unions?



This entire exercise in the union context has focused DOL on gifts and entertainment throughout the industry – not just unions.



Where do we go from here:

• Can a service provider pay expenses for trustees which could be properly paid by the plan?

• Is there any “bright line” to follow?



Request for DOL Guidance

IAA and SIFMA have requested guidance from the DOL based on Rule NASD 3060.



NASD Rule 3060

• Prohibits any person from giving anything of value in excess of $100 per individual per year

• Does not apply to gifts of de minimis value

• Does not apply to promotional items of nominal value that display the firm’s logo



For Banks:

Bank Bribery Act

Internal Policies and Procedures

Ethical Rules



Bank Bribery Amendments Act of 1985

• Requires that the financial institution regulatory agencies publish guidelines to assist employees, officers, directors, agents and attorneys of financial institutions in complying with the law



Bank’s Code of Conduct

• Bank's code of conduct should prohibit any employee, officer, director, agent or attorney from (1) soliciting for themselves or for a third party anything of value from anyone in return for any business, service or confidential information of the bank and (2) accepting anything of value (other than bona fide salary, wages and fees referred to in 18 U.S.C. 215(c)) from anyone in connection with the business of the bank, either before or after a transaction is discussed or consummated



Some of the Exceptions:

• Personal relationships• Marketing expenses - to foster better business

relations• Advertising or promotional material, such as pens,

pencils, note pads, key chains, calendars and similar items

• Gifts of reasonable value that are related to commonly recognized events or occasions, such as a promotion, new job, wedding, retirement, holiday or birthday; or

• Civic, charitable, educational, or religious organization awards for recognition of service and accomplishment



Do we want or need any further guidance?



Thank you for your time!

Lisa J. Bleier

Center for Securities, Trusts & Investments

American Bankers Association

[email protected]

service provider compensation – are there new limits? april 9, 2008 lisa j. bleier

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