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De Minimis Exception for ERISA Violations When Plan Fiduciaries Receive Gratuities From Service Providers

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August 8, 2008

In the summer of 2007, the Director of Enforcement in the Employee Benefits Security Administration and certain offices of the U. S. Department of Labor publicly indicated that they were interpreting Section 406(b)(3) of the Employee Retirement Income Security Act of 1974 (ERISA) to prohibit ERISA plan fiduciaries (such as trustees and plan administrators) from receiving gifts or gratuities from outside service providers or prospective service providers. Section 406(b)(3) of ERISA prohibits plan fiduciaries from receiving "any consideration for his own personal account" from a plan's outside vendors. These DOL representatives said that there was no de minimis exception to this prohibition. A broad range of gratuities such as meals, tickets to sporting events and other entertainment-type expenses were implicated. In addition, it was stated that co-fiduciaries had a fiduciary duty to require fellow fiduciaries to pay back to the plan the value of any gratuities received. Finally, and perhaps most significantly, they indicated that it would enforce this policy retroactively, potentially going back many years.

Just recently the DOL issued new guidelines for fiduciary violations involving gifts and gratuities. The Employee Benefits Security Administration enforcement manual now contains a de minimis exception to the rule. The receipt by a fiduciary of items or services from any one individual or entity will not be treated as a violation of ERISA Section 406(b)(3) as long as their aggregate annual value is less than $250 and their receipt does not violate any plan policy or provisions. DOL Investigators/Auditors have been instructed in the updated enforcement manual to determine whether the fiduciary or the plan maintained a reasonable written policy or plan provision governing the receipt of items or services from parties dealing with the plan. ERISA plans are strongly encouraged to establish policies reflecting these new enforcement procedures.

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