1.
Aristotle & ERISA:
A Case Study Approach to Ethical
Dilemmas in Being a Benefits
Professional
Ilene H. Ferenczy Adam C. Pozek
Ferenczy + Paul LLP DWC ERISA Consultants, LLC
Atlanta, GA Salem, NH

2.
Obligatory Opening Disclaimer
The views expressed by the speakers are their
own and do not necessarily represent the views of
any person, living or dead, real or fictitious, short
or 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.
Introduction
 What Are Ethics?
 Source of Ethics for TPAs
 Other Considerations
 Case Illustrations
3

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.
Business vs. Professional
Ethics
 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.
Business vs. Professional
Ethics
 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.
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.
ERPA ETHICAL OBLIGATIONS
8

9.
ERPA Ethics
 Circular 230 contains ethical rules to which
ERPAs, as well as other tax professionals, are
subject
9

10.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of Tax Practitioners
 10.27: Fees
 No unconscionable fees
 Can use contingent fees in limited circumstances
only
13

14.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
Circular 230 Ethical Obligations
of 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.
ASPPA’S ETHICAL
OBLIGATIONS
26

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.
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.
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.
OTHER CONSIDERATIONS
30

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.
A Good Ethical Rule of Thumb
 Do What’s Right … and don’t let anyone
take away your good name
32

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.
Issues for Attorneys in Identifying
the 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.
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.
WHAT DOES ALL THIS MEAN
IN REAL LIFE?
36

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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Case Study #2
 Fee disputes
47

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.
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.
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.
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.
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.
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.
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.
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.
Issues Raised
 Are these leased employees?
 Should they be covered by the plan?
56

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.
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.
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.
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.
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.
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.
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.
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.
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.
What Are Your Ethical
Obligations 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.
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.
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.
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.
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.
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.
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.
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.
Questions?

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.com
www.ferenczypaul.com/ferenczy_ www.PozekOnPension.com
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