Aristotle & ERISA:A Case Study Approach to Ethical  Dilemmas in Being a Benefits          ProfessionalIlene H. Ferenczy   ...
Obligatory Opening Disclaimer  The views expressed by the speakers are theirown and do not necessarily represent the views...
Introduction   What Are Ethics?   Source of Ethics for TPAs   Other Considerations   Case Illustrations               ...
Ethics … What Is It?   According to the dictionary: the discipline    dealing with what is good and bad and with    moral...
Business vs. ProfessionalEthics   Ethics defined by a professional organization    (like ASPPA or the ABA) may represent ...
Business vs. ProfessionalEthics   Ethics defined by law may represent what you    need to do to keep from getting sued   ...
Professional Ethical Codes   ASPPA Code of Conduct   ABA Model Code of Professional Responsibility    and ABA Model Rule...
ERPA ETHICAL OBLIGATIONS                           8
ERPA Ethics   Circular 230 contains ethical rules to which    ERPAs, as well as other tax professionals, are    subject  ...
Circular 230 Ethical Obligationsof Tax Practitioners       10.20: Information to the IRS       If you are asked to provi...
Circular 230 Ethical Obligationsof Tax Practitioners       10.21: Knowledge of Client’s Omission       If you know that ...
Circular 230 Ethical Obligationsof Tax Practitioners       10.22: Due Diligence       You must exercise due diligence in...
Circular 230 Ethical Obligationsof Tax Practitioners       10.27: Fees       No unconscionable fees       Can use conti...
Circular 230 Ethical Obligationsof Tax Practitioners       10.28: Return of Client Records       Generally, must return ...
Circular 230 Ethical Obligationsof Tax Practitioners       10.28: Return of Client Records (cont’d)       Client’s recor...
Circular 230 Ethical Obligationsof Tax Practitioners       10.29: Conflicts of Interest       Cannot accept representati...
Circular 230 Ethical Obligationsof Tax Practitioners       10.30: Solicitation       No false, fraudulent, coercive stat...
Circular 230 Ethical Obligationsof Tax Practitioners       10.33: Best Practices       You should provide clients with h...
Circular 230 Ethical Obligationsof Tax Practitioners       10.33: Best Practices (cont’d)       You should:           E...
Circular 230 Ethical Obligationsof Tax Practitioners       10.33: Best Practices (cont’d)       You should:           A...
Circular 230 Ethical Obligationsof Tax Practitioners    10.34: Standards for returns and documents,    affidavits, papers...
Circular 230 Ethical Obligationsof Tax Practitioners    10.34: Standards for returns and documents,    affidavits, papers...
Circular 230 Ethical Obligationsof Tax Practitioners    10.34: Standards for returns and documents,    affidavits, papers...
Circular 230 Ethical Obligationsof Tax Practitioners    10.34: Standards for returns and documents,    affidavits, papers...
Circular 230 Ethical Obligationsof Tax Practitioners    10.34: Standards for returns and documents,    affidavits, papers...
ASPPA’S ETHICAL OBLIGATIONS                  26
ASPPA Ethics   ASPPA’s Code of Conduct outlines ethical issues    for someone who is a member of ASPPA:       Perform du...
ASPPA Ethics   Disclose all sources of compensation   Do not act with a conflict of interest unless:       Ability to a...
ASPPA Ethics   Maintain confidentiality   Be courteous and cooperative with others in the    client’s interest       If...
OTHER CONSIDERATIONS                       30
Other Things to Consider   Your reputation       With   your clients       With   other practitioners       With   you...
A Good Ethical Rule of Thumb   Do What’s Right … and don’t let anyone    take away your good name                        ...
Ethical Issues for All Consultants   You must identify and then address ethical    problems   Before doing so, you must ...
Issues for Attorneys in Identifyingthe Client   Privilege issues abound in the ERISA arena   ERISA fiduciary issues comp...
Client Issues for Non-Attorneys   Do not put yourself in the uncomfortable    position of being a witness against your cl...
WHAT DOES ALL THIS MEAN     IN REAL LIFE?                          36
Case Study #1   Proper preparation of Form 5500       Under my contract with the client, I am not        responsible for...
Fact Situation #1a:   Your client has not responded to requests for    data that goes on the form in a meaningful way.   ...
Fact Situation #1b:   Your client has made several late deposits of    deferrals and loans to the 401(k) plan   The clie...
Fact Situation #1c:   A takeover client has filed Form 5500 as a small-    plan filer, claiming audit exemption   You di...
Considerations   If you know that a client has not complied with    tax laws or has made an error or omission, you    mus...
Considerations   You cannot file the return if you know it lacks    reasonable basis, takes an unreasonable    position, ...
Considerations   Under ASPPA rules of conduct:       You must perform duties with honesty, integrity,        skill, and ...
What Should You Do?   Option #1: Refuse to provide the return   Option #2: Provide the return with that item    left bla...
But …   My client says he’ll fire me if I don’t “get real”    about this situation!   Query: Can you afford to keep a cl...
One more thing …   In Circular 230, when evaluating whether the    practitioner acted willfully, recklessly, or    throug...
Case Study #2   Fee disputes                   47
Fact Situation #2a:   Under your contract with the client, it is agreed    that you will not provide services if client i...
Fact Situation #2b:   Under your contract with the client, the client    must pay a monthly minimum fee in order for    y...
Fact Situation #2c:   Under your contract with the client, data    provided at the last minute is subject to a    substan...
Considerations   There are both contractual and ethical issues   According to your contract, you are in a good    positi...
Considerations   If you properly terminate the relationship    properly at the time of the dispute, you have no    furthe...
What Should You Do?   Consider sending past due letters reminding the    client of consequences of non-payment before    ...
Case Study #3   Your client, a group of radiologists, have always    represented to you that they have no employees   Yo...
Case Study #3   You ask the doctors who sits in the chairs, and    they say, “Cathy and Sue”   You ask if they are emplo...
Issues Raised   Are these leased employees?   Should they be covered by the plan?                                       ...
Considerations   Under C230 10.34, you may not ignore    implications of information furnished, and must    make reasonab...
What Should You Do?   Option #1: Tell the client that these individuals    are clearly leased employees and insist the   ...
Additional Thoughts   The doctors cannot make a decision on this    unless you tell them:       The rules and how they w...
Case Study #4:   You are the president of a TPA firm that    employs 10 staff administrators   One of your administrator...
Issues Raised   Is this situation a malpractice or breach of    contract lawsuit waiting to happen?       What is the po...
Considerations   C230, 10.22: you must exercise due diligence       Is that just with regard to information you receive ...
What Should You Do?   Option #1: Sigh, and tell Frank to report to you    as he does work on clients as to the errors he ...
What Should You Do?   Option #4: Do #1, but also evaluate your    company’s procedures to try to figure out how    Jamie ...
Case Study #5   Your firm has taken over several clients from Oh    Yuck TPA Firm   Every case that you’ve seen from OYT...
What Are Your EthicalObligations In Re OYTPA?   You know that OYTPA:       Is either reckless or incompetent in violatio...
What Should You Do?   Option #1: Immediately report OYTPA to the    Office of Professional Responsibility at the IRS    a...
Some Additional Things …   Make sure that your engagement agreement    provides that you are not liable for actions    ta...
Some Additional Things …   Talk to your client about the likelihood that    there are problems with the plan and get    a...
Case Study #6   Your takeover client from OYTPA gets a list of    several problems with the plan:       Documents are no...
Considerations   You know the following about those errors:       The documentation errors are easily discoverable by   ...
What Should You Do?   Option #1: Follow the client’s directions    without further action   Option #2: Fire the client w...
Some Additional Thoughts   If a participant sues, it will likely name you as a    responsible party   Can you ignore err...
Questions?
Contact Information    Ilene H. Ferenczy                  Adam C. Pozek       Ferenczy + Paul LLP           DWC ERISA Cons...
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Aristotle & ERISA: A Case Study Approach to Ethical Dilemmas in Being A Benefits Professional

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Aristotle & ERISA: A Case Study Approach to Ethical Dilemmas in Being A Benefits Professional

  1. 1. Aristotle & ERISA:A Case Study Approach to Ethical Dilemmas in Being a Benefits ProfessionalIlene H. Ferenczy Adam C. Pozek Ferenczy + Paul LLP DWC ERISA Consultants, LLC Atlanta, GA Salem, NH
  2. 2. Obligatory Opening Disclaimer The views expressed by the speakers are theirown and do not necessarily represent the views ofany person, living or dead, real or fictitious, shortor tall, male or female, religious or atheist, with a full head of hair or…well, you get the point.No people or animals were harmed in the making of this presentation.
  3. 3. Introduction What Are Ethics? Source of Ethics for TPAs Other Considerations Case Illustrations 3
  4. 4. Ethics … What Is It? According to the dictionary: the discipline dealing with what is good and bad and with moral duty and obligation; a set of moral principles; a theory or system of moral values If you have a professional designation, it is common for ethics to be a standard for behavior set by your organization 4
  5. 5. Business vs. ProfessionalEthics Ethics defined by a professional organization (like ASPPA or the ABA) may represent what you need to do to keep your designation Ethics defined by a governmental department may represent what you need to do to keep your license to practice before such department (e.g., Circular 230) and may also involve criminal sanctions 5
  6. 6. Business vs. ProfessionalEthics Ethics defined by law may represent what you need to do to keep from getting sued  Breach of contract (did you do what you agreed to do?)  Malpractice (did you do what is commonly done in your industry?)  Fraud or Misrepresentation (did you lie?) 6
  7. 7. Professional Ethical Codes ASPPA Code of Conduct ABA Model Code of Professional Responsibility and ABA Model Rules of Professional Conduct for lawyers AICPA Code of Professional Conduct and AICPA Statements on Responsibility in Tax Practice for CPAs Code of Professional Conduct for all actuarial organizations ASPPA Code of Professional Conduct for Actuaries 7
  8. 8. ERPA ETHICAL OBLIGATIONS 8
  9. 9. ERPA Ethics Circular 230 contains ethical rules to which ERPAs, as well as other tax professionals, are subject 9
  10. 10. Circular 230 Ethical Obligationsof Tax Practitioners 10.20: Information to the IRS  If you are asked to provide information to the IRS, you must provide it promptly and not interfere with the IRS’s efforts to get that information  Exception: you believe in good faith and on reasonable grounds that the information is subject to privilege 10
  11. 11. Circular 230 Ethical Obligationsof Tax Practitioners 10.21: Knowledge of Client’s Omission  If you know that the client has omitted material information or made an error in any filing with the IRS, must advise client  that you know of omission or error; and  the potential consequences of the omission or error 11
  12. 12. Circular 230 Ethical Obligationsof Tax Practitioners 10.22: Due Diligence  You must exercise due diligence in your practice  You can rely on the work product of another person if you exercised reasonable due diligence in engaging, supervising, training, or evaluating the other person, taking into account your relationship with the other person 10.23: Promptness  You must not unreasonably delay the prompt disposition of any matter with the IRS 12
  13. 13. Circular 230 Ethical Obligationsof Tax Practitioners 10.27: Fees  No unconscionable fees  Can use contingent fees in limited circumstances only 13
  14. 14. Circular 230 Ethical Obligationsof Tax Practitioners 10.28: Return of Client Records  Generally, must return all records of client necessary for compliance with tax obligations  Effect of fee dispute  Generally does not relieve obligation to return records, but  If state law permits retention of records in case of fee dispute, need only return records that must be attached to the taxpayer’s return 14
  15. 15. Circular 230 Ethical Obligationsof Tax Practitioners 10.28: Return of Client Records (cont’d)  Client’s records include:  Provided to practitioner in the course of representation that preexisted practitioner’s work (i.e., prior records)  Materials prepared by client or third party  Returns, claims for refund, schedule, affidavit, appraisal, etc. prepared by practitioner that were already presented to client (but not those that are pending the client’s payment of fees with respect to those documents) 15
  16. 16. Circular 230 Ethical Obligationsof Tax Practitioners 10.29: Conflicts of Interest  Cannot accept representation of a client if there is a conflict of interest:  Representation will be directly adverse to another client; or  Significant risk that representation to one or more clients will be materially limited by responsibilities to other clients or third parties or practitioner’s own interests  Exception to prohibition:  You reasonably believe you can provide competent and diligent representation, notwithstanding the conflict;  Representation not prohibited by law;  Each affected client is advised of and waives the conflict in writing 16
  17. 17. Circular 230 Ethical Obligationsof Tax Practitioners 10.30: Solicitation  No false, fraudulent, coercive statements or claims  Cannot use the term “certified” or imply that you are an IRS employee  If make uninvited solicitation, must clearly identify as such and identify source of information used in choosing the recipient  Fee information cannot be misleading 17
  18. 18. Circular 230 Ethical Obligationsof Tax Practitioners 10.33: Best Practices  You should provide clients with highest quality representation by adhering to best practices in providing advice and preparing IRS submissions  You must communicate clearly with clients regarding the terms of your engagement 18
  19. 19. Circular 230 Ethical Obligationsof Tax Practitioners 10.33: Best Practices (cont’d)  You should:  Establish facts  Determine which facts are relevant  Evaluate the reasonableness of any assumptions or representations  Relate the applicable law to the facts  Arrive at a conclusion 19
  20. 20. Circular 230 Ethical Obligationsof Tax Practitioners 10.33: Best Practices (cont’d)  You should:  Advise clients regarding the import of conclusions reached  Act fairly and with integrity vis-à-vis the IRS  Owners/managers should “take reasonable steps” to ensure that the firm’s procedures for all in the firm are consistent with best practices 20
  21. 21. Circular 230 Ethical Obligationsof Tax Practitioners 10.34: Standards for returns and documents, affidavits, papers  You may not willfully, recklessly, or through gross incompetence:  Sign a return or claim for refund when you know or should reasonably know that it contains a position that:  Lacks a reasonable basis  Is an unreasonable position under IRC 6694(a)(2)  Is a willful attempt to understate tax or a reckless or intentional disregard for the rules or regs 21
  22. 22. Circular 230 Ethical Obligationsof Tax Practitioners 10.34: Standards for returns and documents, affidavits, papers (cont’d)  You may not advise a client to take a position on a document submitted to the IRS that is:  Frivolous; or  Meant to impede or delay the administration of the tax laws; or  Contains/omits information that demonstrates an intentional disregard of a rule or regulation unless there is a good faith challenge to the rule or reg 22
  23. 23. Circular 230 Ethical Obligationsof Tax Practitioners 10.34: Standards for returns and documents, affidavits, papers (cont’d)  You must:  Advise the client of any penalties that are likely to apply with respect to a position taken on a tax return or document submission; and  Inform the client of any opportunity to avoid such penalty by disclosure and the requirements of disclosure 23
  24. 24. Circular 230 Ethical Obligationsof Tax Practitioners 10.34: Standards for returns and documents, affidavits, papers (cont’d)  You may:  Rely in good faith on information provided by the client  You may not:  Ignore implications of information furnished, and must make reasonable inquiries if the information appears to be incorrect, inconsistent with facts, or incomplete 24
  25. 25. Circular 230 Ethical Obligationsof Tax Practitioners 10.34: Standards for returns and documents, affidavits, papers (cont’d)  You may not willfully, recklessly, or through gross incompetence:  Advise a client to take a position on a tax return or claim for refunds that:  Lacks a reasonable basis  Is an unreasonable position under IRC 6694(a)(2)  Is a willful attempt to understate tax or a reckless or intentional disregard for the rules or regs 25
  26. 26. ASPPA’S ETHICAL OBLIGATIONS 26
  27. 27. ASPPA Ethics ASPPA’s Code of Conduct outlines ethical issues for someone who is a member of ASPPA:  Perform duties with honesty, integrity, skill, and care  If found guilty of misdemeanor regarding financial matters or any felony, presumed to have violated this rule  Must be qualified to do work based on education, training, experience 27
  28. 28. ASPPA Ethics Disclose all sources of compensation Do not act with a conflict of interest unless:  Ability to act fairly is impaired  Fully disclose conflict  All principals have agreed to performance despite conflict Cannot perform services if have reason to believe that the work is to be used to mislead someone or to violate or evade the law  Take reasonable steps to be clear and fair in presentation with sources clearly identified 28
  29. 29. ASPPA Ethics Maintain confidentiality Be courteous and cooperative with others in the client’s interest  If client is represented by another benefits professional, be respectful even in disagreement and consult other professional unless not prudent to do so No false or misleading advertising Use titles and designations only as permitted by ASPPA 29
  30. 30. OTHER CONSIDERATIONS 30
  31. 31. Other Things to Consider Your reputation  With your clients  With other practitioners  With your employees  With yourself Your risk tolerance Your personal ethics 31
  32. 32. A Good Ethical Rule of Thumb Do What’s Right … and don’t let anyone take away your good name 32
  33. 33. Ethical Issues for All Consultants You must identify and then address ethical problems Before doing so, you must ask some basic questions  Who is the client and to whom is a duty owed?  The plan sponsor?  The plan?  The administrative committee?  The trustee?  The participants? 33
  34. 34. Issues for Attorneys in Identifyingthe Client Privilege issues abound in the ERISA arena ERISA fiduciary issues complicate the issue  An attorney for the administrative committee is typically representing the plan participants first and foremost  But an attorney representing the plan sponsor (as a settlor fulfilling settlor functions) represents the plan sponsor only 34
  35. 35. Client Issues for Non-Attorneys Do not put yourself in the uncomfortable position of being a witness against your client Make certain that laws are followed and do not assist the client in doing something illegal  In many jurisdictions, this could extend to not doing something unethical 35
  36. 36. WHAT DOES ALL THIS MEAN IN REAL LIFE? 36
  37. 37. Case Study #1 Proper preparation of Form 5500  Under my contract with the client, I am not responsible for the data that goes on Form 5500. 37
  38. 38. Fact Situation #1a: Your client has not responded to requests for data that goes on the form in a meaningful way.  Ex. “same as last year” Your client expects you to prepare the form with the data you already have. What’s a TPA to do? 38
  39. 39. Fact Situation #1b: Your client has made several late deposits of deferrals and loans to the 401(k) plan The client demands that you answer “no” to the question on the Form 5500 that asks if there have been late deposits What do you do? 39
  40. 40. Fact Situation #1c: A takeover client has filed Form 5500 as a small- plan filer, claiming audit exemption You discover the plan does not qualify for exemption because more than 5% of assets are not “qualifying assets” You advise client to file an amended Form 5500 and submit an audit report Client refuses What do you do? 40
  41. 41. Considerations If you know that a client has not complied with tax laws or has made an error or omission, you must advise the client and tell them the ramifications (C230, 10.21)  Form 5500 is filed under penalty of perjury  Client can be subject to criminal sanctions  The cost of excise taxes on late payments is very small compared to the cost of perjury 41
  42. 42. Considerations You cannot file the return if you know it lacks reasonable basis, takes an unreasonable position, or is a willful attempt to understate liability (C230, 10.34(a))  Amount of understated liability is small  C230 does not discuss size of liability  You must also advise client of potential penalties 42
  43. 43. Considerations Under ASPPA rules of conduct:  You must perform duties with honesty, integrity, skill, and care  You cannot do something that would violate the law or mislead someone 43
  44. 44. What Should You Do? Option #1: Refuse to provide the return Option #2: Provide the return with that item left blank, and leave the client to fill it in as it sees fit and file the form Option #3: Provide the return completed as the client wants, but refuse to be involved in filing the form Option #4: Protect yourself by giving written notice to the client that you will not prepare the form and the reasons why Option #5: Do what the client wants 44
  45. 45. But … My client says he’ll fire me if I don’t “get real” about this situation! Query: Can you afford to keep a client that would put you in this position?  “I can’t risk jail time for you … would you risk it for me?” 45
  46. 46. One more thing … In Circular 230, when evaluating whether the practitioner acted willfully, recklessly, or through gross incompetence, IRS will take into account your “pattern of conduct” as a factor Do you want to have a pattern of conduct that convinces the IRS that you are dishonest, incompetent, or reckless? 46
  47. 47. Case Study #2 Fee disputes 47
  48. 48. Fact Situation #2a: Under your contract with the client, it is agreed that you will not provide services if client is on credit hold, which means you haven’t been paid for something Can you ethically refuse to do the work when the client is past due? 48
  49. 49. Fact Situation #2b: Under your contract with the client, the client must pay a monthly minimum fee in order for you to do any work The client wishes to terminate services and, therefore, stops paying monthly fee Client now wants you to prepare last year’s Form 5500 You state that your fee is the YTD monthly minimum, as per the contract, and the client must be current Can you require that client bring the fee current before doing any more work? 49
  50. 50. Fact Situation #2c: Under your contract with the client, data provided at the last minute is subject to a substantial rush processing fee You demand advance payment of the rush processing fee before preparing the 5500 Can you refuse to the prepare the 5500 until you get paid, especially recognizing that the due date is close? 50
  51. 51. Considerations There are both contractual and ethical issues According to your contract, you are in a good position not to do the work You are not required to provide client returns, claims for refund, schedule, affidavit, appraisal, etc. that are pending the client’s payment of fees with respect to those documents (C230, 10.28) In the case of a required filing, you may have an ethical obligation to prepare an extension 51
  52. 52. Considerations If you properly terminate the relationship properly at the time of the dispute, you have no further obligation  Other than the possibility of returning client documents If/when the client contacts you later, you are free to negotiate terms of a new engagement  Ethically, the fees you charge should be fair and reasonable fee 52
  53. 53. What Should You Do? Consider sending past due letters reminding the client of consequences of non-payment before you get to the work stoppage phase If in close proximity to a filing deadline, it would be advisable to prepare and file an extension for the client  If nothing else, as a self-protective measure If non-payment continues, send a letter clearly terminating your engagement and explaining the client’s obligations with respect to the plan. 53
  54. 54. Case Study #3 Your client, a group of radiologists, have always represented to you that they have no employees You visit them in their offices at the hospital after hours after five years of working with them, and you find that there is a “front desk” area leading to the radiology department with two desk chairs 54
  55. 55. Case Study #3 You ask the doctors who sits in the chairs, and they say, “Cathy and Sue” You ask if they are employees, and the doctors say that they are hospital employees You ask if they work for any other departments of doctors, and the doctors say “no,” they are dedicated to the radiology department 55
  56. 56. Issues Raised Are these leased employees? Should they be covered by the plan? 56
  57. 57. Considerations Under C230 10.34, you may not ignore implications of information furnished, and must make reasonable inquiries if the information appears to be incorrect, inconsistent with the facts, or incomplete Is the client taking a position that lacks reasonable basis? Do you have “knowledge” of an error? 57
  58. 58. What Should You Do? Option #1: Tell the client that these individuals are clearly leased employees and insist the client correct for past and future years Option #2: Go along with what the client has represented and say nothing Option #3: Explain the rules to the client and let the doctors decide what to do Option #4: Insist that they speak with your favorite ERISA attorney 58
  59. 59. Additional Thoughts The doctors cannot make a decision on this unless you tell them:  The rules and how they work  How you think the IRS will interpret the rules  Most important:  What you think is the likely IRS interpretation of the situation  What the ramifications are if the IRS audits and finds the problem before they take any action to correct Should you put anything in writing? 59
  60. 60. Case Study #4: You are the president of a TPA firm that employs 10 staff administrators One of your administrators, Jamie, quits, leaving behind a 75-client caseload You hire another administrator, Frank, and put him on the caseload Frank quickly discovers that Jamie was very inaccurate in the work that he performed and that every case he has looked at so far has problems 60
  61. 61. Issues Raised Is this situation a malpractice or breach of contract lawsuit waiting to happen?  What is the potential liability for all 75 of these cases if the errors are endemic?  Malpractice  Breach of contract Do I have an ethical breach yet? What do I have to do to avoid an ethical breach for future work? 61
  62. 62. Considerations C230, 10.22: you must exercise due diligence  Is that just with regard to information you receive from the client and its advisors, or does that apply to your own company? C230, 10.33: You should adhere to best practices and take reasonable steps to ensure that firm procedures are consistent with best practices ASPPA: You must perform your duties with honesty, integrity, skill, and care 62
  63. 63. What Should You Do? Option #1: Sigh, and tell Frank to report to you as he does work on clients as to the errors he finds as he does current year work and determine what corrective measures should be taken Option #2: Scream, fire Frank, assign his caseload to your most junior administrator, and hope no one ever finds these problems Option #3: Take a valium, shut down the office for a week, and have your entire staff evaluate each of Jamie’s old cases to find each and every error 63
  64. 64. What Should You Do? Option #4: Do #1, but also evaluate your company’s procedures to try to figure out how Jamie could have operated in such an incompetent vacuum Option #5: Do #4, but also talk to your attorney about how to contain the potential liability and ensure that you protect your E&O insurance 64
  65. 65. Case Study #5 Your firm has taken over several clients from Oh Yuck TPA Firm Every case that you’ve seen from OYTPA has been a disaster, with incorrect testing, documents out of compliance with the law, and many other problems The most recent takeover client told you that OYTPA told him that his fees were 50% of yours, but you have knowledge that he received three times that amount in (apparently undisclosed) revenue sharing 65
  66. 66. What Are Your EthicalObligations In Re OYTPA? You know that OYTPA:  Is either reckless or incompetent in violation of C230 10.34  Does not perform duties with skill and care in violation of ASPPA’s Code of Conduct You believe that OYTPA is charging what you consider to be unconscionable fees 66
  67. 67. What Should You Do? Option #1: Immediately report OYTPA to the Office of Professional Responsibility at the IRS as having violated C230 Option #2: Immediately report OYTPA to ASPPA for having violated ASPPA’s Code of Professional Conduct Option #3: Advise the clients you took over from OYTPA to see an attorney to protect their litigation rights against OYTPA 67
  68. 68. Some Additional Things … Make sure that your engagement agreement provides that you are not liable for actions taken prior to your engagement See what your engagement agreement says about your duty to find errors for past years If it is after July 1, 2012, see if OYTPA complied with the fee disclosure rules of ERISA 408(b)(2) 68
  69. 69. Some Additional Things … Talk to your client about the likelihood that there are problems with the plan and get authorization to review the plan (and to charge for it) Advise client to contact your favorite ERISA attorney 69
  70. 70. Case Study #6 Your takeover client from OYTPA gets a list of several problems with the plan:  Documents are not up to date  Allocations were wrong for at least last year, if not prior years  No ADP/ACP testing was done  No top-heavy analysis, or minimums, were done You tell the client about these issues, and the client says, “That’s okay; just do it right from now on.” 70
  71. 71. Considerations You know the following about those errors:  The documentation errors are easily discoverable by the IRS, even if you update the plan going forward  The IRS considers nondiscrimination problems to continue until correction is made, putting the plan’s qualification at risk for future years  Participants may have claims for benefits due to the incorrect allocations and lack of top- heavy minimums 71
  72. 72. What Should You Do? Option #1: Follow the client’s directions without further action Option #2: Fire the client without further ado Option #3: Discuss the problems with the client in more detail, but accept the client’s ultimate decision Option #4: Report the client to the DOL in regard to potential fiduciary breaches 72
  73. 73. Some Additional Thoughts If a participant sues, it will likely name you as a responsible party Can you ignore errors in prior years and still comply with C230 rules about not providing incorrect info on Form 5500, due diligence, and best practices? What is your actual liability for those prior errors? What should you do to protect yourself from liability? 73
  74. 74. Questions?
  75. 75. Contact Information Ilene H. Ferenczy Adam C. Pozek Ferenczy + Paul LLP DWC ERISA Consultants, LLC Atlanta, GA Salem, NH 678.399.6602 404.320.1105 (f) 651.204-2600x107 651.204.2700 (f) Ilene@FerenczyPaul.com Adam.Pozek@DWCconsultants.comwww.ferenczypaul.com/ferenczy_ www.PozekOnPension.com flash_articles.html www.linkedin.com/in/adampozek

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