Regulatory Considerations Flashcards
1
Q
ERISA
A
- forbids discrimination in favor of the “prohibited group” of highly compensated or supervisory employees and owners
- sets vesting schedules
- requires adequate funding so that pensions do not go bankrupt.
2
Q
Department of Labor Regulations
A
- polices the investment of plan assets and the actions of those in charge of administering plans, and it shares with the IRS the oversight of prohibited transactions
- summary plan descriptions must be given to all plan participants within 90 days of their becoming eligible to join the plan.
3
Q
Fiduciary
A
- exercises any discretionary authority or control over the management of the plan
- exercises any authority or control over the management or disposition of the plan’s assets
- offers investment advice for a fee or other compensation, with respect to plan funds or property
- has any discretionary authority or responsibility in the plan’s administration.
4
Q
Fiduciary Obligations
A
must act solely in the interest of the participants and beneficiaries
- must act for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan.
- must act with care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in conduct of an enterprise of a like charter with like aims.
- must diversify assets
- must act in accordance with the plan document and instruments governing the plan
- ensure that fees and expenses paid are reasonable
5
Q
Prohibited Transactions
A
there are six transactions between a retirement plan trust and a disqualified party which are prohibited:
- sale, exchange, or leasing of property
- lending money or extending credit
- furnishing goods, services, or facilities
- transfer to or use of plan assets by a disqualified person
- plan fiduciaries dealing with plan income or plan assets for their own interests
- a plan fiduciary receiving consideration for his or her own account from a party in a plan transaction which involves plan income or plan assets
6
Q
exempt transactions
A
- receiving benefits under the plan terms
- distributing plan assets according to the plan
- making nondiscriminatory loans to participants
- loans to fund an esop
- purchasing or selling employer securities for an individual account plan
- providing office space or services to the plan for reasonable compensation
- providing qualified investment advice to plan participants and beneficiaries
7
Q
Paties-in-Interest or Disqualified parties
A
- a plan fiduciary
- any person providing services to the plan
- an employer or employee organization
- an owner, direct or indirect, of 50% or more of the emoployer
- a member of the family of any person listed above
- a corporation, partnership, estate, or trust that is 50% owned by someone listed above
- an officer, director, 10% or more shareholder, highly compensated employee, or a 10% or more partner or joint venture partner listed above.
8
Q
Penalty Tax
A
for each prohibited transaction there is a penalty tax of 15% of the amount involved.
-an additional 100% tax is imposed if the transaction is not corrected within the required time
9
Q
Summary Plan Descriptions
A
- must be sent be given to participants 120 cays after the plan is established or within 90 days of an employee entering a plan
- benefit statements must be sent to plan participants at least annually or quarterly for any plan participant who directs the investments.
10
Q
Non-Qualified Plans
A
-within 60 days of plan adoption the employer must send a letter to the DOL
11
Q
BIC Exemption
A
- the advice must be in the best interest of the client
- the prudent man standard must be met
- the compensation earned must be reasonable
- the advisor may not make any misleading statements
- additional operational rules apply concerning compliance policies, disclosures, and use of written contracts
