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Correcting Compliance Problems in Employee Benefit
Plans: Part Two -
Department of Labor Voluntary Fiduciary Correction
Program
By:
Lisa M. deFilippis
 ERISA
imposes strict rules that fiduciaries of employee
benefit plans must follow or risk penalties, civil
liability, and, in egregious cases, even criminal
liability. Fiduciaries are defined in ERISA as
individuals who handle plan assets, and include those
who serve as benefit plan sponsors, trustees, and
investment advisors.
In 2000 the Department of Labor (“DOL”)
introduced the Voluntary Fiduciary Correction (“VFC”)
Program to allow plan fiduciaries to correct breaches
and prohibited transactions (or related party
transactions) and avoid liability and fines for
violations of ERISA’s fiduciary rules. The DOL updated
the VFC Program in April 2005 and April 2006 to simplify
it and to expand the categories of transactions that
could be corrected under the program.
The VFC Program allows a plan
fiduciary to submit an application to the DOL disclosing
certain breaches of fiduciary duty under ERISA and
proposing a correction method and payment of a
correction amount set by the VFC Program. Once the DOL
approves the correction, a no-action letter is issued,
and the fiduciary is protected from future DOL
enforcement action and imposition of the 20% ERISA
penalty with respect to the breach. In addition, the
Internal Revenue Service will waive excise taxes on
prohibited transactions that are corrected under the VFC
Program. Several commonly occurring transactions can be
corrected under the VFC Program, including:
- delinquent transmission of
participant contributions to 401(k) plans and
welfare plans;
- below market rate loans or
sales of assets between related parties and pension
plans;
- defaulted and improper
participant loans;
- benefit payments based on
improper valuation of plan assets; and,
- improper payment of expenses
by a pension plan.
The VFC Program provides for the
correction of fiduciary violations using four steps:
1.
Identify violations and determine if they fall
within the VFC Program;
2.
Follow the process outlined by the DOL for
specific violations (e.g., delinquent transmission of
participant contributions);
3.
Calculate and restore any losses or profits with
interest, if applicable, and distribute such additional
amounts to participants; and
4.
File an application with the appropriate regional
office of the DOL that includes documentation evidencing
the corrective action taken.
The DOL is expanding its audits of
employee benefit plans with a focus on breaches of
fiduciary duty and prohibited transactions under ERISA,
particularly delinquent participant contributions.
Fiduciaries who violate ERISA’s rules face enforcement
action and potentially large penalties and excise taxes
that can be avoided by making corrections under the VFC
Program.
Lisa deFilippis
is a
Partner and Chair of the Employee
Benefits section of the
Business Law Practice Group. She
can be reached at
ldefilippis@bdblaw.com or
216.615.7345.
E-Discovery Series: A New Era of Document
Preservation
By:
Philip R. Wiese
 Document
retention is not a new dilemma and continues to present
challenges for businesses. To some degree, most
businesses have had to address policy issues about
document retention: What types of business records
are important to keep or place into storage? Whose
documents are important to keep? How long are the
documents kept? What is the proper method to destroy
them? Most businesses also have had to wrestle with
the more mechanical problems that relate to document and
file organization: Where and how do we store
thousands of documents so they are preserved? What is
the most efficient way to gather and organize the
documents? Although the answer to these questions
largely depends on the nature of the business and
whether or not specific regulations govern a business’s
document retention policy, all businesses should now
be aware of and be prepared to respond to the most
recent era of document preservation, E-discovery.
E-discovery means “electronic discovery.” It is the
legal field’s response to keeping up with the world of
business’s move into a paperless environment. In
litigation, E-discovery is the court’s effort to capture
everything relevant to a case and what may be important
to get at the truth. In business law, it is
memorializing the electronic paper trail of negotiations
and making sure there is a clear footprint showing every
dynamic to the terms of a deal.
So what
does E-discovery mean to your business? It more than
likely means a heightened duty for your business to now
“capture it all” and to be prepared – well in advance
– to provide thousands of pages of documents upon almost
immediate demand. Paper memos are being replaced with
email blasts and electronic bulletin boards; business
letters are being replaced with rapid and informal email
exchanges; and complex balance sheets are being reduced
to snapshot financial statements. Indeed, comfort with
doing business on-line and at any time of the day or
night has increased, and people have become very
inclined to multi-task simply for the sake of getting
more accomplished in a short period of time, and with
less effort. However, with the conveniences afforded by
this fast-paced and emerging business model, relaxing
daily business communications comes with significant
risk, and these risks impose upon businesses heightened
obligations.
Heightened Business
Obligations in the Era of E-Business Translate to How
In-Touch You Are:
1. What are your business’s computer and
electronic systems being used for?
2. Do you know who in your business has access
to what information and whether they are handling it
responsibly, especially if it is sensitive?
3. Are your business’s computers protected and
properly managed to preserve confidentiality and system
integrity?
4. Is your business prepared, in a
well-organized fashion, to cull documents together in
response to a massive document production request, and
does your business have a plan to obtain electronic
files from business departments and personnel?
5. Does your business have a step-by-step
reaction plan in place to manage electronic data such as
emails?
6. Are you, as a business leader, regularly
communicating business challenges and potential problems
to your legal counsel?
These heightened obligations should
be managed with some simple responses.
Simple Responses to Remember:
1. Be aware of the extent and use of your
business’s electronic data.
2. Know what personnel are using your business’s
computers, know why those people have access to specific
information, and know what they are doing with it.
3. Impose reasonable controls on employees, and
implement checks and balances that help you control your
business’s information.
4. Be prepared to impose “litigation holds” or
“data stops” immediately upon notice of an investigation
or computer system breach, and identify resources that
can help the business prepare for these events.
5. Immediately obtain guidance from your
in-house and outside legal counsel on how to manage
documents and electronic data, even if you think you
already know how. There is always a new and perhaps
enhanced method. Be open-minded to change and new
ideas.
E-discovery is an evolving area of the law and is here
to stay, so long as the world of business continues to
be commanded by electronic data and communications. As
a result, courts are left to impose hard-line rules that
require your business to maintain records that allow the
history of the business to be preserved, and if needed,
recalled and reproduced effectively at a moment’s
notice. Your business needs to be prepared in advance
with programs and systems to organize your “electronic
warehouse.”
Mr. Wiese
commented on the
complexities companies face with growing reliance on
email during an interview appearing in National Notary
Magazine in
Security in Paper or Electronic Transactions.
References: E-Discovery Litigator’s Resource
Guide LexisNexis® Applied Discovery® (2006
Compilation).
Phil Wiese
is a
Shareholder in the Litigation Practice Group.
He can be reached at
pwiese@bdblaw.com or 330.258.6529.
Affiliated Business Arrangements: Real Estate
Agents and Title Companies, Be Careful!
By:
David L. Drechsler
Real estate agents are
often times the most likely source to refer business to
title companies. Real estate agents may feel that they
should be compensated for these referrals. While real
estate agents cannot be paid a fee for a referral, a
real estate agent can benefit financially so long as the
strict requirements of the Real Estate Settlement
Procedures Act (RESPA) are met.
RESPA prohibits title
companies from paying kickbacks or fees to real estate
providers such as real estate agents in return for
referring business to the title company. Referrals are
permitted by a real estate agent, however, if a real
estate agent is part of an Affiliated Business
Arrangement (AfBA) and the strict guidelines of RESPA
are followed. An AfBA is a provider of real estate
settlement services in which a person in a position to
refer settlement services also has an ownership interest
in the AfBA.
In order to qualify for
the AfBA exemption certain requirements are necessary.
These include that a disclosure be made of the existence
of the arrangement to the person being referred and in
connection with such referral and that the person is
provided a written estimate of the charge or range of
charges generally made by the provider to which the
person is referred. In addition, the referred person
must also be advised that he/she is not required to use
any particular provider of the settlement services.
Finally, the real estate agent cannot receive anything
of value from the referral, but can receive a return on
the ownership interest of the AfBA.
RESPA also requires the
AfBA be a “bonafide provider” of services. HUD statement
of policy 1996-2, regarding sham control business
arrangements, sets forth a ten-part test to facilitate
in determining whether an AfBA is a sham. Some of the
criteria include whether the entity has sufficient
initial capital and net worth, whether the AfBA is
staffed with its own employees, whether the AfBA manages
its own business affairs, whether the entity has
separate offices or shares offices with a title company
or person who may have an ownership in the title
company, whether the AfBA is providing substantial
services, and whether the AfBA is actively competing in
the marketplace. These are some of the criteria
considered.
AfBAs can be an
excellent way for a title company to gain market share
and be very competitive. However, the AfBA must
comply with the RESPA requirements and failure to do so
can invite investigations and proceedings by the
government and civil litigation, including class action
litigation. If any title company is considering
establishing AfBAs, it is highly recommended that the
particular title company work with a qualified attorney,
so as to be certain that the proper requirements are
met.
This article originally appeared in the June 2006
issue of Properties Magazine (www.propertiesmag.com).
David Drechsler
is a
Shareholder in the Litigation Practice
Group. He
can be reached at
ddrechsler@bdblaw.com or 216.615.7344.
BDB Sports & Entertainment Has a
Successful First half
By:
Adam W. Heller
 With
a successful NFL Draft, several veteran football client
acquisitions, and progress made into basketball, BDB
Sports & Entertainment has enjoyed a very successful
first half of 2006.
In the 2006 NFL Draft held in
April, our client Anthony Schlegel was drafted by the NY
Jets in the 3rd round. BDB is one of only two
Ohio-based agencies to have a player drafted on the
first day. Prior to the opening of training camp,
Anthony signed a four-year, multi-million dollar
contract with the Jets.
Just after the draft,
BDB Sports also negotiated contracts for clients with
the NY Giants (Todd Londot), Detroit Lions (Antonio
Malone), Washington Redskins (Chris Hawkins), Pittsburgh
Steelers (Isaac Smolko), Philadelphia Eagles (Jason
Davis), and Chicago Bears (Mark Philmore). These
signings were a multi-office effort, as Adam Van Rees of
the Akron office was instrumental in signing both Mark
Philmore (Northwestern) and Isaac Smolko (Penn
State).
Leading up to the draft, BDB Sports
& Entertainment signed two veteran football players for
representation. Branden Joe, who is playing for the
Pittsburgh Steelers, is a former Ohio State Buckeye
fullback and was a starter on the 2002 National
Championship team. Also, BDB Sports signed Chris Terry,
a veteran NFL offensive lineman who has over 40 starts
in the NFL. Finally, at the start of the free agent
signing period in March, we negotiated a new contract
for Rock Cartwright, a backup RB and special teams
contributor for the Washington Redskins. Rock, who led
the NFL in average yards per carry in 2005, signed a
four-year contract that can void to two years based on
his individual performance.
On the basketball side of the
business, BDB Sports & Entertainment, with an assist
from Canton attorney David Dureska, signed all four
senior OSU basketball players (Je’Kel Foster, Terence
Dials, Matt Sylvester, and J.J. Sullinger) for marketing
representation. Further, we have signed Je’Kel Foster
for representation in his basketball career. Je’Kel
played for the Cleveland Cavaliers in their summer
league and has offers to play in both Europe and Asia
next season.
6504.
Adam Heller
is the Chair of the BDB Sports &
Entertainment section of the
Business Law Practice Group. He
can be reached at
aheller@bdblaw.com
or 614.221.1287.
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Before joining the law firm, Ms.
Diewald served as Associate General Counsel and Vice
President of Global Structuring and Distribution for
a national, full service real estate company
involved in the investment, acquisition,
construction, rehabilitation, development,
management and operations of multi-family housing
properties. She has extensive experience drafting,
negotiating, and structuring capital investments by
Fortune 500 companies into guaranteed and
non-guaranteed investment funds involving low-income
housing tax credits. Ms. Diewald has managed
outside legal professionals regarding capital
investments by corporate investors, real estate
acquisitions, and real estate development.
Employment &
Workers' Compensation, Business Law, Trusts & Estates,
and Litigation Practice
Groups, Shareholder
Mr.
Kurtzman’s practice is focused on probate law, trial
practice, accident and personal injury, litigation
regarding government immunity, and arbitration.
He has 40 plus years experience in the legal
profession.
Ms. Leeson focuses her practice on family law and
commercial litigation, including contract disputes,
employment and construction law. She formerly
served as a Staff Attorney of the 15th Judicial
Circuit, assigned to the Circuit Civil, Family,
Probate, and Civil Appeals divisions. In addition,
Ms. Leeson assisted the Judiciary with all aspects
of complex litigation by performing extensive legal
research and writing, drafting proposed final
judgments, orders and bench memoranda.
Litigation
Practice Group, Associate
Before joining the firm in 2006, Ms. Loucks served as
a Staff Attorney to the Honorable Judge David Fais
for the Franklin County Court of Common Pleas. Ms.
Loucks was also a Litigation Associate at Robinson,
Curley & Clayton, P.C. in Chicago, Illinois.
Her practice is focused in the areas of commercial,
construction and business litigation in state and
federal courts.
Before joining the law firm, Ms.
Simpson served as an Associate attorney at Feldman
Gale, P.A. in Miami, Florida. Her practice includes
representation in complex commercial and
non-competition litigation, and trademark, trade
dress, patent, trade secret, and advertising
litigation in state and federal courts and
advertising substantiation litigation before the
Federal Trade Commission.
Mr. Stergios has many years of legal experience in
various areas of law including litigation in state
and federal courts, corporate and business
transaction, estate planning, and representation of
local government entities. Mr. Stergios served
as Special Counsel for the Stark County Prosecutor’s
Office from 1985 to 1988. He also served as a
Special Agent for the Federal Bureau of
Investigation from 1969 to 1972.
Mr. Stergios has over 45 years experience in
various areas of the law. His practice is
focused in health law, estate planning, business
law, and labor relations. Mr. Stergios has
served as Special Counsel to the Attorney General of
Ohio since 1995.
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Kudos
Brian J. Cooke
(Buckingham
West Palm
BeachSM)
was appointed Managing Partner of BDB's West Palm Beach
office.
Thomas Hess
(Buckingham ColumbusSM)
was re-appointed to the Board of Examiners of the
Nursing Home Administrators (BENHA) by Governor Taft.
Donald B. Leach, Jr.
(Buckingham
ColumbusSM)
and
Henry I. Reder
(Buckingham
ClevelandSM) were both named “one of
Ohio’s leading construction law attorneys” in the 2006
Edition of Chambers USA. Chambers USA Guide is unlike
any other US legal directory. No attorneys are included
unless they are strongly recommended by the market.
I. Jeffrey Pheterson
(Buckingham
Boca
RatonSM) was appointed to the Board of
Directors for the Weiss Treasury Only Money Market Fund,
a Mutual Fund affiliated with Weiss Capital Management,
Inc.
John L. Reyes
(Buckingham
AkronSM) was elected to the Board of Trustees
for the Akron Bar Association.
Brent D. Rosenthal
(Buckingham
ColumbusSM)
just finished year one of a 2-year term as Chairman of
the Columbus Bar Association (CBA), Real Property
Committee. He is also working on committees reviewing
pro bono legal work by Columbus lawyers, and CLE efforts
for the CBA.
Speaking Out
Save the Date for these Upcoming Presentations:
September 13 -
"Maximizing Income and Minimizing Expenses,"
Business Practice Group Seminar, Akron/Fairlawn Hilton,
Ohio. Topics
include "How to Work Efficiently With Your Lawyer,"
"Establishing the Right Price for Buying or Selling a
Business," "Minimizing Tax Expense for the Business and
Its Owners," "Minimizing Development Expenses with Tax
Increment Financing," and "Regional Economic
Development, The Global Economy, and Your Business."
To register for this seminar,
click here.
October 4 - 2006 Employment Law Seminar Mock Trial,
Akron/Fairlawn Hilton, Ohio. We will demonstrate core principles of
employment law and human resource management through a
mock trial. Don't find yourself in a real trial.
Have some fun, watch ours and learn! Look for more
information to come at
http://www.bdblaw.com/seminars.asp.
October 5 - "Examining the Legal Issues Affecting
Nonprofit Organizations," Nonprofit Law Practice Group
Seminar, co-sponsored with the Center for Nonprofit
Excellence, Holiday Inn, Independence, Ohio.
Enroll today at
www.cfnpe.org/plugins/calendar/.
October 11 - 2006 Employment Law Seminar Mock
Trial, Kent State University Stark Professional
Education and Conference Center, North Canton, Ohio.
Look for more information to come at
http://www.bdblaw.com/seminars.asp.
October 18 - 2006 Employment Law Seminar Mock
Trial, Fawcett Center - The Ohio State University,
Columbus, Ohio. Look for more information to come
at
http://www.bdblaw.com/seminars.asp.
December 1 -
Thomas J. Bonasera
(Buckingham ColumbusSM)
will be presenting on probate, trust administration,
and litigation topics in Acapulco, Mexico. The
seminar is being sponsored by the OSBA CLE Travel
Program.
Out and About – Recent Presentations:
Business Practice Group
Gerald B. Chattman
(Buckingham
ClevelandSM)
presented "Public Policy & Aging: Become an
Effective Advocate" in Cleveland, Ohio. The
presentation was sponsored by the Western Reserve Area
Agency on Aging.
Steven A. Dimengo
(Buckingham
AkronSM)
spoke at the 2006 Annual Ohio Tax Course in Columbus,
Ohio. The seminar was sponsored by the Ohio
Department of Taxation.
Health & Medicine Practice Group
Joe Feltes
(Buckingham CantonSM)
spoke at a Lorman Education Services seminar titled,
Sarbanes-Oxley in Ohio: Compliance for Health Care
Entities in Columbus, Ohio. His topic was
"Overview of the Environment."
Mark Frasure
(Buckingham CantonSM) and
Thomas Hess
(Buckingham ColumbusSM)
presented at a Lorman Education Services seminar
in Akron, Ohio. Their topic was "Management of Medical Records in Ohio."
Real Estate & Construction Practice Group
Nicholas T. George
(Buckingham
AkronSM)
and
David J. Lindner
(Buckingham
ClevelandSM)
presented at a Lorman Education Services seminar
in Akron, Ohio. The title of the seminar was
"Condominium
and Planned Community Practice in Ohio."
Brent D. Rosenthal
(Buckingham
ColumbusSM)
made a presentation at a Lorman
Education Services seminar in Columbus, Ohio. The seminar
title was Negotiating Complex Real Estate Transactions.
His topic was "Due Diligence Aspects of Complex Real
Estate Transactions."
Trusts & Estates Practice Group
Thomas J. Bonasera
(Buckingham ColumbusSM)
presented at the Worthington Estate Planning
Council meeting about probate developments in the state
of Ohio. He also spoke at a Brain Injury
Association Seminar regarding special needs trusts for
TBI survivors. Finally, Mr. Bonasera presented
"Retiring from a Law Practice," a broadcast throughout
Ohio from The Ohio State University.
INFORMATION ON
SEMINARS OR SPEAKERS If
you are interested in obtaining information on upcoming
seminars or would be interested in having speakers from
Buckingham, Doolittle & Burroughs, LLP make a presentation
to your organization, please contact: Lorna
Henderson, Client Relations
Administrator, at
lhenderson@bdblaw.com
or
800.686.2825 ext. 86473. |
