September 23-25, 2015

Transcription

1 The ESOP Association California Western States Annual Conference September 23-25, 2015 Lynn DuBois, Partner ESOP Law Group, LLP Neil Brozen, CPA, Managing Director Bankers Trust Company of South Dakota ERISA Fiduciaries Fiduciary Acts Importance of a Written Investment Policy Statement Key Components of a Policy What to Do What NOT to Do 2 1

2 Only those persons who deal with an ERISA Plan Definitional Fiduciaries Functional Fiduciaries 3 Persons who, by their title, are defined as fiduciaries of the plan Plan Document READ the Plan documents! 4 2

3 A functional fiduciary is a person who: Exercises discretionary authority or control over plan management or disposition of plan assets Exercises discretionary authority or responsibility regarding plan administration Provides investment advice for a fee 5 Persons performing only ministerial duties are not fiduciaries if Have no discretion to make decisions regarding plan assets or administration Do not in fact exercise discretion regarding plan assets or administration 6 3

4 Certain functions related to the plan are nonfiduciary but rather are settlor functions Investment decisions are always a fiduciary function Administration is only a fiduciary function if there is discretion 7 ERISA requires fiduciaries to: (i) act for the exclusive benefit of plan participants and beneficiaries; (ii) act prudently; (iii) diversify the investment of plan assets (exemption for ESOPs); and (iv) act in accordance with plan documents. 8 4

5 Board of Directors Appoint the ESOP Committee Duty to Monitor Committee Role Trustee Role 9 ERISA requirement? DOL view Procedural prudence Test of conduct, not test of results Must have a procedure: an investment policy Segregated accounts Different treatment? 10 5

6 What is the strategy for funds contributed to the Plan for both current and long-term RO funding? If the funds contributed are sufficient to cover only current RO needs, then is there an investment strategy at the corporate level to manage longer term needs? Investment strategy pertains to both corporate and ESOP asset management 11 Provides investment managers with a clear understanding of the portfolio s goals, objectives and guidelines Aids in developing realistic targets for future investment performance Means for judging the quality of the results Evidence of a prudent process 12 6

7 States the role of fiduciaries in the investment process States the frequency of investment valuation States in clear language the investment objectives (safety, liquidity, rate of return) States the time horizon for achieving goals 13 Identifies acceptable asset classes Establishes asset allocation policy Delineates risk tolerance of the fund (e.g. liquidity, quality) Defines clearly the method of gauging the success of fund / managers 14 7

8 Pre-Dudenhoeffer Presumption of prudence for ESOPs Post-Dudenhoeffer ESOP fiduciaries not entitled to presumption that buying or holding employer stock is prudent Must have a procedure: an investment policy 15 Dudenhoeffer was a public company case Privately held stock in ESOP Fiduciaries must regularly evaluate the prudence of company stock as an investment Define criteria for evaluating company stock 16 8

9 Know who has responsibility for Plan investments Stock vs non-stock Have an investment policy Flexible Follow the policy Document fiduciary meetings and investment decisions 17 Tatum v. RJR Pension Inv. Committee (4 th Cir. April 4, 2014) Stock fell in value by 60% at the time of decision to sell; price recovered by time case heard by court Court ruled in favor of plaintiffs finding that: Decision to change stock investment was made by employees who had no authority under the plan Meeting on investment lasted less than one hour Thorough investigation was not conducted Fiduciaries did not seek outside legal or financial expertise Fiduciaries failed to hold regular meetings to monitor investment Fiduciaries failed to engage in a prudent decision-making process 18 9

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12 Lynn DuBois, Partner ESOP Law Group, LLP (415) Neil Brozen, CPA, Managing Director Bankers Trust Company of South Dakota (612)