Report on DOL Audit Activity

I have always thought that it would be a great idea if someone could keep track of practitioners’ “war stories” about DOL and IRS audit activity in order to keep plan sponsors apprised of developments. Ilene Ferenczy has provided some great information about DOL audit activity going on in the Atlanta region in this email update entitled “DOL Working Hard in the Atlanta Area to Ferret out Fiduciary Breaches.” She notes in her article that the DOL examinations she has been involved with recently happen to be targeting small employers (3 – 5 employees) rather than large employers. In one case where the owner of the company was the trustee, she discusses how the DOL had taken issue with the fact that there were no investment policies and procedures in place.

Where can you learn more about the ERISA requirements for investment policy statements? Actually, there is no specific ERISA provision that mandates that a plan have an investment policy statement. However, the DOL has said the following in Interpretative Bulletin 94-2:

The maintenance by an employee benefit plan of a statement of investment policy designed to further the purposes of the plan and its funding policy is consistent with the fiduciary obligations set forth in ERISA section 404(a)(1)(A) and (B).

Also, at least one federal district court has gone farther than that and held that a failure to have an investment policy statement under the facts of the case before the court constituted a breach of fiduciary duty. Liss v. Smith, 991 F.Supp. 278 (S.D.N.Y. 1998). (Sorry, no link to the case that I can find.)

(By the way, Ilene is well-known in the benefits world for her treatise: “Employee Benefits in Merger and Acquisitions.”)

The Inside Story About Certain DOL Audit Activity

I have always thought that it would be a great idea if someone could keep track of practitioners’ “war stories” about DOL and IRS audit activity in order to keep plan sponsors apprised of developments. Ilene Ferenczy has provided some great information about DOL audit activity going on in the Atlanta region in this email update entitled “DOL Working Hard in the Atlanta Area to Ferret out Fiduciary Breaches.” She notes in her article that the DOL examinations she has been involved with recently happen to be targeting small employers (3 – 5 employees) rather than large employers. In one case where the owner of the company was the trustee, she discusses how the DOL had taken issue with the fact that there were no investment policies and procedures in place.

Where can you learn more about the ERISA requirements for investment policy statements? Actually, there is no specific ERISA provision that mandates that a plan have an investment policy statement. However, the DOL has said the following in Interpretative Bulletin 94-2:

The maintenance by an employee benefit plan of a statement of investment policy designed to further the purposes of the plan and its funding policy is consistent with the fiduciary obligations set forth in ERISA section 404(a)(1)(A) and (B).

Also, at least one federal district court has gone farther than that and held that a failure to have an investment policy statement under the facts of the case before the court constituted a breach of fiduciary duty. Liss v. Smith, 991 F.Supp. 278 (S.D.N.Y. 1998). (Sorry, no link to the case that I can find.)

(By the way, Ilene is well-known in the benefits world for her treatise: “Employee Benefits in Merger and Acquisitions.”)

Tax Freedom Day Song

Today was apparently the first day in 2008 to be working for yourself rather than the federal government according to the Tax Policy Blog:

Most people have heard of Tax Freedom Day by now. For the few who haven’t, Tax Freedom Day is the day on which Americans have earned enough money to pay all their federal, state and local taxes for the year. On Tax Freedom Day, we have earned enough to pay the government and we can finally start keeping our paychecks for ourselves and our families. It’s a great way to illustrate how much the nation as a whole pays in taxes. We also calculate a Tax Freedom Day for each state.

How did Tax Freedom Day come about? According to this Special Report:

Tax Freedom Day was conceived by Florida businessman Dallas Hostetler in 1948. He performed the calculation himself and promoted his copyrighted concept until his retirement in 1971. He deeded the intellectual property to the Tax Foundation, and since then the Tax Foundation has used historical data to calculate Tax Freedom Day back to the beginning of the 20th century, and in 1990 sufficient data became available to calculate a separate Tax Freedom Day for each state.

Listen to the Tax Freedom Day song here.

(Complements of the Tax Prof Blog and RothCPA.com.)

Transcript for Oral Arguments in MetLife v. Glenn

You won’t want to miss reading the transcript for oral arguments in the case of MetLife v. Glenn argued before the Supreme Court this morning. Access it here. I liked this exchange regarding reference to the Supreme Court’s previous decision in the Firestone case:

MR. ROSENKRANZ: Mr. Chief Justice, and may it please the Court: This Court got it right in Firestone when it said, of course a conflict must be weighed. There’s no reason for this Court to override its well-reasoned and unanimous conclusion which -
JUSTICE SCALIA: Dictum.
MR. ROSENKRANZ: It was dictum, Your Honor, but it was very well-considered dictum because -(Laughter.)
MR. ROSENKRANZ: — the only issue before the Court so far as the parties thought was what is the effect of this dual role that Firestone had? And this Court did not answer that question, but that’s what the parties were arguing about. So this Court correctly discerned the rule from trust law. It correctly discerned and balanced ERISA’s policies and, if anything -
JUSTICE SCALIA: What I don’t like about the dictum is I don’t know what it means.
MR. ROSENKRANZ: Your Honor -
JUSTICE SCALIA: I think it’s lovely to say weigh it as a factor, it gets the case off our docket and it’s fine. But what does it mean?

Read more about the case in a post here by Roy Harmon and a post here by Stephen Rosenberg.

UPDATE: Paul Secunda has some good analysis and commentary here on today’s oral arguments.

Independent Contractor Status Under the Microscope

I don’t know about you, but I always worry about employers and their benefit plans when I see articles like this one in the LA Times: “Independent Contractor Status Scrutinized.” That is because misclassification issues can create problems with employee benefits plans. (Read about it in previous posts here and here.) The article reports that the state of California is cracking down on “businesses that wrongly claim employees are independent contractors and, as a result, not subject to a slew of taxes and labor laws.” While obviously such action is intended to uncover those employers who might be abusing the system by improper classification of their workforce, there are other employers who aren’t involved with such abuse, but who will find this worrisome due to the difficult issues that arise in deciding whether to classify individuals as “employees” or “independent contractors.” Sometimes it is not so clear whether an individual is an “employee” or “independent contractor” because the individual may have characteristics of both in his or her relationship with a company or firm. And as this site of the California Industrial Relations Board here indicates: “[I]t is possible that the same individual may be considered an employee for purposes of one law and an independent contractor under another law.”

You can read more about worker classification under IRS rules here. See also this post discussing another state’s scrutiny of worker misclassifications here.