The Department of Labor has released a new online resource called the ERISA Fiduciary Advisor to provide basic information about fiduciary responsibilities under ERISA. The Advisor uses an interactive format with preliminary questions and linked topics to discuss issues such as fiduciary duties, liability for plan sponsors, and options for correcting mistakes. However, the information provided is aimed to be very simple and may not fully address complex real-world ERISA situations. While repetition of core concepts is useful, the resource may have limited assistance for those already familiar with ERISA basics. It serves as an initial educational tool but may not provide detailed guidance for complicated compliance issues.

1. 401(k) Advisor
In Partnership with:
The ERISA Law Group, P.A.
www.wklawbusiness.com
The Insider’s Guide to Plan Design, Administration,
Funding & Compliance
BRIEFLY
VOLUME 23, NO. 10
OCTOBER 2016
Plan Loans…Do We Really Need Them?
James E.Turpin, FCA
S
ometimes when we consider optional plan provisions in designing a plan for a
client, it is apparent that some of these options are not worth the underlying
administrative issues. One of the first things I take off the table is plan loans.
Of course, then the client puts it right back on the table saying, “My employees won’t
sign up for the plan without a loan provision.” Then, I remind him that they are prob-
ably not going to sign up anyway, which is why we are discussing having either a safe
harbor matching contribution or a 3% employer safe harbor contribution. And, we
go on from there.
The client does have a point about plan loans being a feature that may encour-
age more employees to actively participate in their 401(k) plan. Certainly, increasing
participation was an important consideration for plan sponsors prior to the advent of
safe harbor plans. From a paternalistic view, increasing participation is important as
it means employees are more likely to save for retirement, which should be the goal
of every retirement plan. However beneficial a loan provision is in your plan, it is not
necessarily going to increase participation by rank-and-file employees. Moreover, plan
loans invariably create problems for employees, plan administrators, plan sponsors,
third-party administrators, and recordkeepers.
First, let’s look at some of the rules that apply to plan loans. As a general rule,
ERISA and the Internal Revenue Code prohibit a participant from encumbering his
or her benefits (e.g., plan benefits cannot be used as collateral on a loan). This non-
alienation rule has a couple of exceptions, and a loan from the plan to a participant
that meets certain criteria is one of the exceptions. Some of the basic requirements for
participant loans include the following:
The plan document must provide for participant loans;
The plan administrator or plan sponsor must adopt a written loan policy that
outlines the requirements for obtaining a plan loan and any applicable restrictions
on such loans; [Editor’s note: Many existing policies violate ERISA.]
The maximum plan loan cannot exceed the lesser of 50% of the participant’s
vested accrued benefit, or account balance, or $50,000;
A plan loan must be repaid within 5 years unless the loan is for the purchase of the
participant’s principal residence, in which case the loan can be for up to 15 years;
The loan must bear a commercially reasonable rate of interest;
The loan must be repaid in level installments which are at least quarterly;
The loan is evidenced by an enforceable promissory note; and
Loans cannot be provided in a manner that is more favorable for highly compen-
sated employees than for nonhighly compensated employees.
3 New Department of Labor
Advice Resource
4 Document Update
Does the Employer Have the
Right Procedures?
5 Legal Update
What the DOL’s Final
Fiduciary Rule Means
for Plan Committees
6 Q&A
Q&A with Heather Abrigo
Regarding the Current State
of DOL Service Provider
Investigations
8 Benefits Corner
Forum Selection Clause
Rejected
Advice for Young Plan
Participants
IRS Softens Harsh
Distribution Rule
Louisiana Flooding
Prompts IRS Relief
10 Regulatory & Judicial
Update
11 Industry Insights
The Economics of Providing
401(k) Plans: Services, Fees,
and Expenses, 2015
12 Last Word on 401(k) Plans
What Is the Context?

2. 2 401(k) ADVISOR
A couple of observations about these rules. First, the
$50,000 limitation is reduced by the highest outstanding
balance in the prior 12 months on any other plan loans.
This effectively eliminates rolling over a loan within the plan
unless there is sufficient room within the limitation for an
entirely new loan that would repay an existing loan. It is pos-
sible for the plan to provide a loan of up to $10,000, even
if this amount would exceed 50% of the participant’s vested
interest in the plan. However, the Department of Labor does
not allow a participant to use more than 50% of their vested
interest in the plan to secure a plan loan, which means the
plan would need additional collateral on a loan that exceeds
50% of the participant’s vested interest.
With the movement to electronic platforms for many
plan functions, there is a question as to whether obtain-
ing a loan through an online system that does not actually
require the participant to sign a promissory note creates a
validly enforceable promise to pay. Plus, the plan may require
spousal consent for loans that exceed certain limits (such
as $5,000) where a distribution of the same amount would
require spousal consent. Generally, it is hard to document
notarized spousal consent through an electronic platform.
You look at the rules. They seem to be fairly straightfor-
ward. So, what could go wrong?
Participant John has a vested account balance of $30,000
and wants to borrow $12,000 from the plan. So far, this
doesn’t seem to be a problem because $12,000 is less than
$15,000, which is 50% of his vested account balance. But
wait, what does the plan say about loans to participants? If the
box that says “No loans” is checked, then everything should
stop at this point, but does not always. However, if it does say
loans are permitted, then you need to review any specific loan
provisions in the plan itself as well as the loan policy and then
provide John with an application for the loan.
Why does John need to fill out a loan application? After
all, it is his own money that he is borrowing. True, but mak-
ing a loan is a fiduciary decision on the part of the trustee
and if John has previously defaulted on another plan loan,
it may be that making a loan to him is not prudent. So,
the application process allows the plan administrator and the
trustee to document the request for a loan and to inform the
participant of the terms and conditions of the loan before
any loan documentation is prepared and funds disbursed.
The application will also specify if the loan is for purchase
of a residence, meaning a longer repayment period would be
permitted.
Now, what rate of interest will the plan charge for the
loan? It has to be commercially reasonable, which is not well
defined in any of the rules other than it is what a bank would
charge a borrower under similar circumstances. One view is
this is similar to the owner of a certificate of deposit borrow-
ing from the bank using the CD as collateral. In that case, the
401(k) Advisor
The Insider’s Guide to Plan Design, Administration, Funding & Compliance
© 2016 CCH Incorporated. All rights reserved.
401(k) Advisor (ISSN 1080-2142) is published monthly by Wolters Kluwer, 76 Ninth Avenue, New York, NY 10011. One year subscription costs $695. Periodicals postage paid at Frederick, MD, and
additional mailing offices. To subscribe, call 1-800-638-8437. For customer service, call 1-800-234-1660. POSTMASTER: Send address changes to 401(k) Advisor, Wolters Kluwer, 7201 McKinney
Circle, Frederick, MD 21704. This material may not be used, published, broadcast, rewritten, copied, redistributed or used to create any derivative works without prior written permission from the
publisher. Printed in U.S.A.
Permission requests: For information on how to obtain permission to reproduce content, please go to the Wolters Kluwer website at http://www.wklawbusiness.com/footer-pages/permissions.
Purchasing reprints: For customized article reprints, please contact Wright’s Media at 1-877-652-5295 or go to the Wright’s Media website at www.wrightsmedia.com.
This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering
legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought—Froma DeclarationofPrinciples
jointly adopted by aCommittee of the American Bar Association and aCommittee of Publishers.
Visit the Wolters Kluwer website at www.wklawbusiness.com.
Editors — The ERISA Law Group, P.A. (www.erisalawgroup.com)
Jeffery Mandell, Esq. is founder and President of The ERISA Law Group, P.A. His practice
is concentrated solely on ERISA matters for clients coast-to-coast. Mr. Mandell is a
nationally recognized practitioner, speaker, and author on ERISA topics, and is the founder
of Employee Benefit Publications and Seminars. He assists his clients in achieving their
employee benefit objectives, including keeping their plans in compliance with ERISA’s
numerous, ever-changing requirements.
John C. Hughes, Esq. is a shareholder in The ERISA Law Group, P.A. He counsels clients on
all types of plan-related issues including fiduciary responsibility, plan design, qualification,
administration, correction, mergers and acquisitions, and litigation. John is a former Board
Member and President of the Boise Chapter of the Western Pension & Benefits Council.
Contributing Editors
William F. Brown, Esq.
Milwaukee, WI
Michael P. Coyne, Esq.
Mary Giganti, Esq.
WaldhegerCoyne
Ilene H. Ferenczy, Esq.
Ferenczy Benefits LawCenter LLP
John P. Griffin, Esq.
Charles D. Lockwood, Esq.
Actuarial SystemsCorporation
Peter Gulia, Esq.
FiduciaryGuidanceCounsel
Douglas S. Neville, Esq.
Greensfelder, Hemker &Gale, P.C.
James E. Turpin
TheTurpinConsultingGroup, Inc.
Marcia S. Wagner, Esq.
The Wagner LawGroup
Publisher
Richard Rubin

3. VOL. 23, NO. 10 • OCTOBER 2016 3
© 2016 CCH Incorporated. All rights reserved.
rate would be 150 to 200 basis points above the CD interest
rate. In today’s market, that would mean a rate of 2.5% to
3% is acceptable. Another view is the rate should be what
the bank would charge a good business customer or some-
thing like prime plus 1% or 2%. Regardless of your approach,
the rate charged needs to be consistent for all similarly situ-
ated loans, although the rates may vary as market conditions
change. Of course, plans may charge a variable rate, but this
adds unnecessary complexity to the record keeping on the
loan and rarely yields sufficient additional return to make the
added administrative burden worthwhile.
Okay, we know the amount of the loan and the inter-
est rate, now how is it going to be repaid? You need level
installments made at least quarterly. For most loans, it is far
more practical to have them repaid through payroll deduc-
tions with the repayment schedule based on the frequency
of payroll. Just be sure that the loan will be fully amortized
within 5 years (or 15 years for a residential loan).
Now, all of the above is reduced to a promissory note
and amortization schedule. The note gives the plan a lien on
the participant’s account balance for the outstanding balance
and notifies the participant of what happens if he defaults
on the loan. Wait a minute, the payments are coming out
of his paycheck. So, how could he default on the loan? First,
he could rescind the authorization for the payroll deduction.
Second, he could quit, be fired, go on medical leave, get laid
off, etc. In any of these instances, the payments stop and the
loan would go into default.
If there is an event allowing a distribution of benefits to
the participant, the loan would be distributed to the partici-
pant as an in-kind distribution. This happens when the loan
balance is offset against the total value of the participant’s
benefits. Instead of a distribution of $30,000, John receives
$18,000 in cash and $12,000 as the note, and then is taxed
on the entire $30,000 unless he rolls the cash portion of his
distribution over to another plan or IRA. It is possible to
roll over the loan to another plan, if the plan of John’s new
employer will accept the loan as part of his transfer.
If there is not a distribution event, the default results in a
deemed distribution for tax purposes of the value of the note.
In other words, John would have to pay taxes as though he
received a distribution of the outstanding balance of the note.
This doesn’t make the note go away, and technically John still
owes the balance on the note.
At any step in the process from determining the right to
a loan in the first place, making sure payments are made and
deposited to the plan in a timely manner, not identifying a
default at the proper time, making a second loan when the
loan policy specifies only one loan at a time is permitted, a
payment schedule or payment amount that won’t amortize
the loan within five years or worse. All of these mistakes sim-
ply cost the plan sponsor time anxiety and money to fix the
problem. Generally, the benefit of offering loans turns out to
not be worth the hassle, potential expense, and downside that
is created by these possible mistakes.
Next time, we will look at examples of actual loan mis-
takes and how they are corrected through EPCRS.
James E. Turpin is the President of the Turpin Consulting Group,
Inc, in Longview, Washington. He can be reached at 505-888-7000 or
JTandME@aol.com.
“a simplified explanation of the law” and “is not a legal inter-
pretation of ERISA, nor is it intended to be a substitute for
the advice of a retirement plan professional.” It then goes on
to ask the user some preliminary questions and provide basics
relating to the topic. The preliminary questions are aimed at
determining whether the user’s plan is subject to ERISA. For
example, one of those early questions is “Is your plan a gov-
ernmental or church plan?” and there is a brief discussion as
to what that means. Then, the user is brought to a page that
provides a listing of questions that can be clicked on to bring
them to a discussion of the answer, such as “What are fiduciary
responsibilities?” The discussion pieces are each approximately
one page. There are 13 categories including “What are my
liabilities as a fiduciary and how can I limit them?,” “Is hiring
a service provider a fiduciary function, and if so, what do I
T
he Department of Labor (DOL) has released a new
resource called “elaws.” The DOL Web site describes
elaws as aimed at the following: “The elaws Advisors
help employees and employers learn their rights and respon-
sibilities under Federal employment laws.” The “Advisors” are
Web-based presentations that address various topics via an
interactive links and questions that are intended to educate
the user. The Advisors are not focused on ERISA issues alone,
but cover a broad range of topics including those relating to
pay, health and safety, veterans issues, FMLA, etc.
The first ERISA-related Advisor became available this
summer. It is called the “ERISA Fiduciary Advisor.” The
ERISA Fiduciary Advisor starts by describing the focus of
ERISA and explaining who might be a fiduciary. The intro-
duction also prominently states that the Advisor is providing
New Department of Labor Advice Resource
JohnC. Hughes, Esq.

4. 4 401(k) ADVISOR
would not already possess the basic information that is there.
However, of course, repetition and reminders are not bad.
John C. Hughes is a shareholder with The ERISA Law Group, P.A.
in Boise, Idaho. He can be reached at 208-342-5522 or at john@
erisalawgroup.com.
need to do?,” “What help is available for employers who make
mistakes in operating a plan?,” and “Tips for Employers with
Retirement Plans.” There are also links to other resources.
The information provided is extremely basic. It is dif-
ficult to determine if it will provide assistance in the complex
world of ERISA. It is also difficult to imagine that someone
interested enough to locate and walk through this resource
look for accounts that are the subject of an involuntary
distribution;
specifying sequencing rules for which subaccount to
charge a distribution against;
specifying what a participant, beneficiary, or alternate
payee must or may do to render and deliver a valid
investment instruction;
specifying which of a series or set of investment funds
(such as target date: funds) is a participant’s default
investment;
furnishing summary plan descriptions (and summaries
of material modifications);
furnishing information required under Rule 404a-5 and
other rules concerning participants’ investment direction;
using Internal Revenue Service correction procedures;
using Employee Benefits Security Administration correc-
tion procedures;
withdrawing a participating employer.
We could describe several more points, but one gets
the idea.
Now that we have a list, let us ask a few questions:
How many of these procedures does your plan have?
Are you confident you could find all of them?
Would you be embarrassed if you had to produce them
for an investigation or litigation?
Have you required each worker who must follow a proce-
dure to complete training on the procedure?
Has the employer had turnover of the people who admin-
ister the plan?
Have you done anything to test whether the plan’s opera-
tions follow a procedure?
Could a smart claimant (or regulator) use your procedure
to show you do not administer your plan according to
its terms?
I
n “Does the Employer Have All the Procedures?” in 401(k)
Advisor’s January 2015 issue, we explained that “preap-
proved” documents used for retirement plans often state
many commands or permissions for provisions that are not
stated in the document, but instead must or may be stated in
a written “policy” or “procedure.” The article suggested five
ways in which an absence of a procedure might be a violation
of the Employee Retirement Income Security Act of 1974
(ERISA) or a breach of a fiduciary’s responsibility to admin-
ister the plan. (For simplicity, this article assumes a plan’s
sponsor or a committee is the plan’s administrator, and refers
to both as the employer and, in this article’s questions, you.)
Imagine an employer took the article’s hint, and listed
the prototype or volume-submitter document’s mentions of
procedures the employer must or should make. What might
an employer find?
In skimming documents provided by big recordkeepers,
I found many provisions calling for an employer, as a docu-
ment’s user, to adopt written procedures on several points
including those on:
counting eligibility service, accrual service, and vesting
service;
specifying timing of, and limits on, a salary reduction
agreement;
specifying conditions for accepting a rollover contribution;
considering claims (at least those required under ERISA
Section 503);
qualified domestic relations orders;
determining whether a participant has a hardship;
deciding whether a claimant is a participant’s named
beneficiary;
deciding whether a claimant is a participant’s default
beneficiary;
specifying the account balance that triggers an invol-
untary distribution, and how often the employer will
DOCUMENT UPDATE
Does the Employer Have the Right Procedures?
PeterGulia, Esq.

5. VOL. 23, NO. 10 • OCTOBER 2016 5
© 2016 CCH Incorporated. All rights reserved.
And here’s the overall question: Would a prudent fiduciary
neglecttogetitsadvisors’helpindesigning,checking,implement-
ing, and testing the employer’s written policies and procedures?
Peter Gulia is a lawyer with Fiduciary Guidance Counsel, which
focuses on advising retirement plan fiduciaries and service providers.
You can reach him at 215-732-1552 or Peter@PeterGulia.com.
Do you know when each procedure last was updated?
How do you know that each procedure remains correct
under current law?
Did you get an unambiguous assurance? Did a “not
advice” disclaimer negate the assurance?
If you incur a loss or expense because you relied on an
assurance or advice, would you have a clear legal remedy
to recover the money you lost or spent?
investment-related communication that “would reasonably
be viewed as a suggestion [to] engage in or refrain from tak-
ing a particular course of action” as fiduciary in nature even
if the communicator does not intend to give definitive advice
(whether on a primary basis, or otherwise). As these consul-
tants will no longer be able to take the position that they are
not ERISA fiduciaries, the change in status has a number of
possible implications for retirement plan committees.
First, because there is a concept under ERISA known as
co-fiduciary liability, retirement plan committees’ potential
fiduciary liability under ERISA is increased. In part for that
reason, although more so for the uptick in fiduciary litigation
in the past few years, retirement plan committees members
might wish to review and possibly increase their fiduciary lia-
bility insurance. This fiduciary liability insurance is entirely
separate and apart from the ERISA fidelity bond, which only
deals with losses due to fraud or dishonesty.
Second, the level of disclosure that a fiduciary makes to
retirement plan committees is different from the disclosure
by a nonfiduciary. For example, a fiduciary must furnish
information with respect to its direct and indirect compensa-
tion as well as the conflicts of interest of interest arising from
its business model.
Third, because of a perceived higher risk of liability as
a fiduciary, the fees charged by a service provider that is
now being treated as a fiduciary may be higher. That could
be relevant from a retirement plan committee’s perspective,
because it needs to sign off on the compensation being paid
to the service provider as reasonable. Payment of unreason-
able compensation to a service provider is a prohibited trans-
action under both the Internal Revenue Code and ERISA.
Finally, to the extent that a service provider is acting as
a fiduciary, retirement plan committees will want to confirm
the manner in which the service provider is dealing with
potential conflicts of interest.
A
s most readers are aware, on April 6, 2016, the U.S.
Department of Labor (DOL) released its final rule on
fiduciary investment advice and its related exemptions
(Fiduciary Rule) that greatly expands the list of activities that
make one a fiduciary and the entities that will be treated as fidu-
ciaries under ERISA. The Fiduciary Rule is a significant regula-
tory initiative, and thus it is important to understand how it
impacts retirement plan committees’ fiduciary responsibilities
and committee relationships with plan service providers. This
article will focus on some of the implications the new Fiduciary
Rule will have on retirement plan committee responsibilities.
Immediate Effect. At its narrowest scope, the new
Fiduciary Rule will have no effect on plans that already have
strong retirement plan committees comprised of qualified
internal representatives aided by independent fiduciaries.
That is, the Fiduciary Rule generally does not expand upon
the activities that will result in fiduciary status for retirement
plan committee’s members, since retirement plan commit-
tee’s members are currently ERISA fiduciaries because of their
responsibilities for the management of the plan and its assets.
The new Fiduciary Rule does not alter the fiduciary duties
that ERISA currently imposes on plan fiduciaries: the duties
of loyalty, prudence, diversification of plan assets, acting for
the exclusive benefit of plan participants and beneficiaries,
and administering plans in accordance with their terms.
Retirement Plan Committees and Service Providers.
Where the new Fiduciary Rule will have an effect on retirement
plan committees will be in dealing with service providers who
in the past may not have regarded themselves as fiduciaries. For
example, in the past, a consultant who was making recommen-
dations that might be perceived as advice could avoid fiduciary
responsibility by saying he or she did not render advice “on
a regular basis,” or that a recommendation was not intended
to serve as the “primary basis” for investment decisions. The
Fiduciary Rule takes a broader approach and characterizes any
LEGAL UPDATE
What the DOL’s Final Fiduciary Rule Means for Plan Committees
Marcia S.Wagner, Esq.

6. 6 401(k) ADVISOR
involving rollovers can have fiduciary implications, and as a
result, there may be fewer rollovers from the various plans
that are maintained by the plan sponsor, that is, there will be
more terminated vested participants with account balances in
these plans. Although this will most likely not directly affect
plans in 2016 or 2017, retirement plan committees will need
to start considering how to address the implications this will
have on plans in the near future.
Big Picture. Retirement plan committees will need
to make sure that they have a firm understanding of the
Fiduciary Rule and put the proper policies and procedures
in place to address the increased responsibilities they have in
monitoring the interactions of individual and entities that
will be deemed fiduciaries under the new Fiduciary Rule.
Marcia S.Wagner is the Managing Director of The Wagner Law Group.
She can be reached at 617-357-5200 or Marcia@WagnerLawGroup.com.
Investment Education and Distribution. Another
area in which the new rules will have an effect, although
operationally more upon human resources rather than
retirement plan committees, is with respect to investment
education and distribution options. The DOL recognized
the importance of being able to provide investment educa-
tion and distribution information to plan participants. It
also recognized that the Fiduciary Rule could cause those
responsible for providing this information at the plan level
to be treated as fiduciaries. Therefore, the DOL created spe-
cific conditions that allow for those responsible to not be
subject to the Fiduciary Rule. Communications in both of
these areas will need to be monitored by retirement plan
committees to ensure that a line is not inadvertently crossed
converting a permissible nonfiduciary communication into
a fiduciary one.
IRA Rollovers. The new Fiduciary Rule also extends
ERISA investment fiduciary coverage to IRAs. Transactions
In this Q&A session, we asked Heather Abrigo, counsel with the firm
of Drinker Biddle & Reath in the Los Angeles office, to discuss service
provider investigations. Ms. Abrigo is an employee benefits attor-
ney and assists public and private sector plan sponsors, third-party
administrators, and other pension service providers in all aspects of
employee benefits including qualified retirement plan and health
and welfare issues. Ms. Abrigo also assists with Department of Labor
investigations and Internal Revenue Service audits. Ms. Abrigo can
be reached at 310-203-4054 or heather.abrigo@dbr.com.
QWhy is the Department of Labor (DOL) focusing on
service providers?
AWell, I can say that I do not think it is a surprise that
the DOL is focusing on service providers. With recent
regulations regarding fee transparency, it was just a matter
of time that their focus would be on service providers. From
what we can tell, it would appear that the DOL is focusing
on service providers for three reasons. First, we see an intensi-
fied focus on prohibited transactions. The DOL has seen an
increase of prohibited transactions by service providers which
is the primary reason for their focus. Second, there has been
an increased and growing awareness by the DOL of the influ-
ence that service providers have over retirement plan opera-
tions. This likely came from investigations of plans. The third
focus has been the DOL’s concerns over conflicted advice that
adversely impacts participants. This is also emphasized with
the issuance of the DOL’s fiduciary regulation. Specifically, in
announcing the final rule, the DOL stated that:
Many investment professionals, consultants, brokers,
insurance agents and other advisers operate within
compensation structures that are misaligned with their
customers’ interests and often create strong incentives
to steer customers into particular investment products.
These conflicts of interest do not always have to be dis-
closed and advisers have limited liability under federal
pension law for any harms resulting from the advice
they provide to plan sponsors and retirement investors.
The DOL indicated that the final fiduciary rule will “pro-
tect investors by requiring all who provide retirement invest-
ment advice to plans, plan fiduciaries, and IRAs to abide by
a ‘fiduciary’ standard—putting their clients’ best interest
before their own profits.” Lastly, the DOL in their report on
the proposed fiduciary rule referred to a 2005 SEC study that
“…conclude[d] that consultants with conflicts of interest
may steer plan investors to hire certain money managers or
other vendors based on a consultant’s (or an ‘affiliates’) other
business relationship and receipt of fees from these firms
Q&A
Q&A with Heather Abrigo Regarding the Current State
of DOL Service Provider Investigations

7. VOL. 23, NO. 10 • OCTOBER 2016 7
© 2016 CCH Incorporated. All rights reserved.
rather than because the money manager is best suited to the
plan’s needs.” Conflicted advice by service providers has been
a concern of not just the DOL but other government agen-
cies. Now, there is a directed focus by the DOL on protecting
plans and their plan participants, and the goal of these inves-
tigations is to make sure that there are protections in place.
QWhat is prompting these service provider DOL
investigations?
AFor the most part, these investigations appear to be part
of the DOL’s continuing Consultant/Adviser Project
(CAP). CAP is and has been an ongoing initiative of the DOL.
The purpose of the CAP project is to focus on “the receipt of
improper or undisclosed compensation by employee benefit
plan consultants and investment advisers.” The most critical
element in bringing enforcement actions under CAP is to
establish that the service provider is a fiduciary. The primary
goal of the DOL and CAP is to ensure that plan fiducia-
ries and participants receive comprehensive disclosure about
service provider compensation and conflicts of interest. This
was evident with the issuance of the ERISA 408(b)(2) disclo-
sure regulations in 2012, the subsequent 404a-5 participant
disclosure guidance, and now, the DOL final fiduciary rule.
With all of this activity, it is clear that the DOL is concerned
with transparency and making sure that the fees paid to ser-
vice providers by plans are properly disclosed as well as fidu-
ciary status and a description of services. Lastly, I would be
remiss if I fail to mention that that the Employee Benefits
Security Administration (EBSA) will also conduct criminal
investigations of potential fraud, kickback, and embezzle-
ment involving advisers to plans and participants.
QWhat is the DOL looking for?
AThe Department of Labor is primarily focused on
the receipt of compensation, the disclosure of such
receipt, and whether there are any prohibited transactions
involved in connection with the receipt of such compensa-
tion. What is important to note is that even if the com-
pensation is disclosed by the service provider, the DOL is
looking to see if such compensation violates ERISA. One
way that it could violate ERISA is by virtue of whether the
adviser/consultant used their position with a benefit plan
to generate additional fees for itself or its affiliates. This can
sometimes happen when there is one service provider that
is providing a multitude of services to not just the ben-
efit plan, but also to the Company. In such circumstances,
the potential for engaging in a prohibited transaction is
increased and thus, the receipt of compensation must be
carefully examined.
QHow does the investigation start?
AGenerally, there is a standard letter that is sent out to
the service provider that indicates a date for the on-site
examination. The letter will give a time period that is being
covered by the investigation and most commonly it spans
3 years. There will also be a voluminous request for docu-
ments that is attached to the initial letter. The letter will give
a deadline for when the documents are due, and in what form
the documents should be submitted.
QSo what does the service provider do first?
AThe service provider should first try not to panic. In
my experience, the biggest reasons for panic by service
providers are because of timing issues. The list of documents
and information is extensive and the timing is very short. So,
what service providers need to know is that they can nego-
tiate both the timing of their response (e.g., get an exten-
sion) and the volume of materials. However, let me tell you
the most important thing that service providers should do.
This is especially true if they don’t have time to make the
investigation a priority and/or are not sure what to look for.
They need to get help and primarily from experienced ERISA
counsel. Many times I have been asked to assist with inves-
tigations, when all of the initial documentation has already
been submitted and after the initial interview has been given.
My biggest piece of advice to service providers facing a DOL
investigation is to never just put the documentation together
and send everything to the DOL. Service providers should
always review the materials first to see what issues there might
be. I like to counsel my clients that it is better to know their
weaknesses and problems areas prior to the DOL pointing
them out. In some cases, we have been able to fix certain
issues that we found during our initial review.
QWhat are some of the problems that service providers
encounter during the initial production?
AAs I mentioned, the biggest problem is the timing.
Depending on the DOL investigator, you may either be
able to negotiate for a longer period of time to response, or
send them what you have readily available with the balance
of information/documentation to be provided under sepa-
rate cover. Furthermore, it is important to note that some
of the information and/or documentation being requested
may not be available and/or even applicable. The request
for documents and/or information is over-inclusive and the
service provider should realize that not all requests may be
applicable.

8. 8 401(k) ADVISOR
liaison with the DOL. Third, if issues come up during the
investigation remember that under certain circumstances
you can resolve them without agreeing to “settle.” Fourth,
if there are issues that come up, check with your E&O car-
rier to ensure that there aren’t any notification requirements.
Lastly, do not get overwhelmed. If you are starting to get
overwhelmed that is a sign that you need help. Don’t be
afraid to reach out to an ERISA attorney to assist with the
DOL investigation.
QDo you have any final pieces of advice for service
providers who are and/or might be facing a DOL
investigation?
AYes. First, be organized. This is especially important
because of the voluminous amount of documentation
and information you are providing during the investigation.
Second, get competent assistance and designate someone
from your organization to lead the investigation and be the
Forum Selection Clause Rejected
Many plan sponsors have been adding plan provi-
sions that restrict where a lawsuit regarding the plan may
be brought. For example, a federal district court in Illinois
recently considered an ERISA plan provision that provided
that “the only proper venue for any person to bring a suit
against the Plan or to recover Benefits shall be in federal court
in Harris County, Texas.”
ERISA states that an action involving an ERISA plan
“may be brought in the district where the plan is adminis-
tered, where the breach took place, or where a defendant
resides or may be found.” The forum selection clause in the
Illinois case effectively limited this provision to one locale.
The court looked to the policies surrounding ERISA and
concluded that there is a public policy to provide ERISA
plaintiffs with “ready access to the Federal courts,” with the
better interpretation being that ERISA protects a plaintiff’s
ability to file suit in a convenient forum. The court ruled that
the forum selection clause was unenforceable and then used a
traditional forum non conveniens analysis to determine that
the best forum for the suit was in the Southern District of
Illinois, where the plaintiff lived and the alleged breach of the
plan occurred.
The plaintiff had purchased a life insurance policy with
spousal coverage as an employment benefit offered by BP, with
premiums deducted from her wages. She then divorced her
husband and informed BP, but was allegedly not told that there
would be any issue with maintaining the coverage on her now
ex-spouse. The SPD apparently had a clause that permitted
spousal coverage after a divorce. BP continued to deduct the
premiums for spousal coverage for another 15 years, but the
related life insurance company, also a defendant, declined to
pay the death benefit after her ex-spouse died.
The court acknowledged that there were other rulings
that would have accepted the plan provision in question.
In particular, the Court of Appeals for the Sixth Circuit
has ruled the policy of “ready access” is met so long as the
plaintiff has a venue in “a federal court.” Smith v. AEGON
Cos. Pension Plan, 769 F.3d 922, 931-932 (6th Cir. 2014).
This is the only appellate court ruling on a forum selection
clause in an ERISA plan. The Illinois ruling may signal that
the courts are going to take a closer look at such clauses,
particularly when the case involves a single participant
or beneficiary seeking benefits in litigation against a large
plan sponsor.
Advice for Young Plan Participants
401(k) plans are getting a lot more media attention
these days. One of the latest is a post on the CNBC Web
site entitled “Five 401(k) tips for recent grads.” It begins
by noting that starting retirement savings “takes a dose of
determination and a bit of strategy.” Its first tip is the obvi-
ous “Start now.” If the worker can get into the employer’s
401(k) plan, then he or she should take advantage of it
right away. If the plan has a waiting period, then the new
worker should get in the habit of saving anyway, diverting
the planned 401(k) election to an emergency fund or to pay
down high-interest debt or student loans. The goal should
be to save 10 percent of annual pay. Second, the participant
should defer at least enough to receive the employer’s full
matching contribution, if any. Unfortunately, even many
experienced employees fail to do so, which is just “leaving
money on the table.” Third, the participant should review
the plan’s investment options and make selections that bal-
ance growth and risk, without putting everything into “one
basket.” The participant should also consider the fees on the
investment choices. Although index funds and exchanged-
traded funds are supposed to have lower fees, that is not
necessarily the case, and the participant should confirm that
these investment offerings are actually low cost. Fourth, the
participant should take advantage of any investment advice
BENEFITS CORNER
William F. Brown, Esq.

9. VOL. 23, NO. 10 • OCTOBER 2016 9
© 2016 CCH Incorporated. All rights reserved.
that is available through the plan, even if there is a charge
for it. Apparently, a common mistake of young participants
is opting for an overly conservative strategy, not realizing
that their long time horizon allows for more growth poten-
tial. If no advice is available, the participant should consider
the plan’s target-date fund. Finally, the younger participant
should consider tax impacts as well. A Roth 401(k) defer-
ral, funded with after-tax funds, is often effective for these
employees, who will probably face higher tax brackets later
in their employment history.
IRS Softens Harsh Distribution Rule
When an account holder receives a distribution payable
to himself from a retirement plan or an IRA of an amount
that is eligible for rollover to another plan or an IRA, IRC
Sections 402(c)(3) and 408(d)(3) provide that the distribu-
tion is not taxable if it is transferred to an eligible plan or an
IRA within 60 days from the date the participant received
it. The Treasury Secretary may waive the 60-day rollover
requirement “where the failure to waive such requirement
would be against equity or good conscience.” Rev. Proc.
2003-16 establishes a letter-ruling procedure for applica-
tions for this waiver. The Treasury has now issued Rev. Proc.
2016-47, effective August 24, 2016, that greatly changes the
process for a participant who misses the 60-day deadline.
Of course, all of these potential problems can be avoided if
the participant processes the distribution as a direct rollover
to the recipient plan or IRA.
The new revenue procedure offers a simplified approach
for the participant who misses the 60-day deadline. The par-
ticipant can prepare a “written self-certification” to the plan
administrator or “IRA trustee” that the contribution to the
recipient plan satisfies the new requirements. The IRS has
provided a model letter for this purpose. Section 3.04(1)
states that the administrator or trustee can rely on the self-
certification when determining whether the rollover has sat-
isfied the conditions for a rollover waiver, unless that entity
has “actual knowledge” to the contrary. Subsection (2) states
that the self-certification is not an IRS waiver but that the
“taxpayer may report the contribution [to the new plan or
IRA] as a valid rollover unless later informed otherwise by
the IRS.”
Section 3.02 of the procedure states the conditions for
self-certification. The IRS cannot have previously denied a
waiver request for any part of the distribution, the participant
must have missed the deadline for one or more of 11 different
reasons, and the rollover must be made to the plan or IRA
“as soon as practicable after the reason or reasons listed…no
longer prevent the taxpayer from making the contribution.”
The last condition is automatically met if the contribution is
made within 30 days after the taxpayer is no longer prevented
from making the rollover.
The 11 acceptable reasons are expansive. Among
others, they include an error by the financial institution
either making or receiving the distribution, misplacing the
distribution check (so long as it was never cashed), mis-
taken deposit into an account believed eligible to receive
a rollover, severe damage to the participant’s residence,
death or serious illness of a family member or serious ill-
ness of the participant, a postal error, or the participant’s
incarceration.
Finally, Revenue Procedure 2016-47 adds new authority
that allows the IRS to grant a waiver of the 60-day rollover
requirement during “the course of examining a taxpayer’s
individual income tax return.”
Louisiana Flooding Prompts IRS Relief
Torrential rainstorms in the Baton Rouge area have
prompted the IRS to release what appears to be unprec-
edented relief. IR-2016-115 and Announcement 2016-30
explain that victims of the “Louisiana Storms” who have
“retirement assets in qualified employer plans” can obtain a
loan or hardship distribution “to alleviate hardships caused
by the Louisiana Storms.” This includes participants directly
affected by the disaster or participants living outside the
disaster area who take out a loan or a hardship distribution to
assist a child, parent, grandparent, or “other dependent who
lived or worked in the disaster area.” The plan “can ignore the
reasons that normally apply to hardship distributions, thus
allowing them, for example, to be used for food or shelter.”
The plan can also “relax” any documentation requirements.
The plan administrator “may rely upon representations from
the employee or former employee as to the need for and
amount of a hardship distribution” unless the administra-
tor has “actual knowledge” to the contrary. The plan does
not have to otherwise allow for hardship or other in-service
distributions to make hardship distributions for this pur-
pose, although a defined benefit plan or money purchase
plan may not do so. The plan can also ignore the rule that
a 401(k) participant cannot make deferrals for six months
after receiving the distribution. The plan sponsor does not
have to adopt a plan amendment to permit such loans or
hardship distributions in advance, although an amendment
will apparently be required.

10. 10 401(k) ADVISOR
REGULATORY & JUDICIAL UPDATE
Item Statement Status
ERISA allows for
indemnification of
co-fiduciaries.
Chesemore, et al. v. Fenkell, et al., U.S. Court of Appeals, Seventh Circuit,
Nos. 14-3181, 14-3215, and 15-3740, July 21, 2016
Validating a 30-year precedent, the Seventh Circuit has ruled that ERISA’s
foundation in principles of trust law allows courts to order equitable rem-
edies of contribution or indemnification among co-fiduciaries. Accordingly, a
functional fiduciary that controlled hand-picked ESOP trustees, was required
to indemnify the trustees for breach of duty in executing a leveraged buyout
at an inflated price that resulted in significant losses for ESOP participants.
David Fenkell founded and controlled Alliance Holding, a company that
specialized in purchasing and selling ESOP-owned, closely held companies
with limited marketability. In a typical transaction, Fenkell would merge the
ESOP of an acquired company into Alliance’s own ESOP, hold the company
for a few years (keeping management in place), and then spin it off for a profit.
In accordance with its business model, Alliance acquiredTrachte Building
Systems, Inc. in 2002 for $24 million. Trachte maintained an ESOP which,
incident to the acquisition, was folded into Alliance’s ESOP.
Fenkell anticipated that Trachte could eventually be sold in five years for
$50 million. However, Trachte’s profits and growth stalled and no inde-
pendent buyer would meet Fenkell’s expected price. Accordingly, Fenkell
“offloaded” the company to Trachte employees in a complicated leveraged
buyout, which involved the creation of a “new” Trachte ESOP managed by
trustees selected and controlled by Fenkell; spinning accounts in the Alliance
ESOP off to the new Trachte ESOP; and the purchase by the new Trachte
ESOP (using employee account assets as collateral for debt) ofTrachte’s equity
from Alliance. At the conclusion of the multiple interlocking transactions,
the new Trachte ESOP had paid $45 million for 100 percent of Trachte’s
stock and it incurred $36 million in debt.
The purchase of the stock was inflated and the debt load proved to be
unsustainable. By the end of 2008, Trachte’s stock was worthless.
Current and former employees who participated in the old Trachte
ESOP, Alliance ESOP, and the new Trachte ESOP subsequently brought suit
under ERISA, charging Alliance, Fenkell, and the trustees of the new ESOP
with breach of fiduciary duty. The trial court found that the trustees and
Fenkell and Alliance breached fiduciary duties to the employees. However,
because Fenkell and Alliance controlled the trustees and directed the inflated
leveraged buyout transaction, they were determined to be most at fault and
ordered to indemnify the trustees. Fenkell did not challenge his liability for
fiduciary breach, but appealed the indemnification order.
On appeal, Fenkell maintained that ERISA does not authorize indemni-
fication or contribution among co-fiduciaries. ERISA Section 405(b)(1)(B)
contemplates the allocation of fiduciary obligations among co-fiduciaries, but
does not specifically mention contribution or indemnity as a remedy. Courts,
however, are allowed, under ERISA Section 502(a)(3), to fashion appropriate
equitable relief in response to a claim by a participant, beneficiary, or fidu-
ciary. The United States Supreme Court has interpreted “appropriate equi-
table relief” as encompassing remedies that were typically available in equity.
CIGNA Corp. v. Amara, 563 U.S. 421 (2011).
ERISA authorizes
courts to order
contribution or
indemnification
among co-fiduciaries
based on degree of
culpability.
continued on page 12

11. VOL. 23, NO. 10 • OCTOBER 2016 11
© 2016 CCH Incorporated. All rights reserved.
INDUSTRY INSIGHTS
The Economics of Providing 401(k) Plans: Services, Fees,
and Expenses, 2015
ICI Research Perspective, Vol. 22, No. 4 July 2016
Sean Collins, Sarah Holden, James Duvall, and Elena Barone Chism
Plan Sponsors Select Service Providers
and Investment Arrangements
Plan sponsors select the service providers for their 401(k)
plans and choose the investment options offered in them.
The costs of running a 401(k) plan generally are shared by
the plan sponsor and participants, and the arrangements
vary across plans. The fees may be assessed at a plan level,
a participant-account level, as a percentage of assets, or as a
combination of arrangements.
Exhibit 1 shows possible fee and service arrangements in
401(k) plans. The boxes on the left highlight employers, plans,
and participants, all of which use services in 401(k) plans. The
boxes on the right highlight recordkeepers, other retirement
service providers, and investment providers that deliver invest-
ment products, investment management services, or both.
The dashed arrows illustrate the services provided.
For example, the investment provider offers investment
products and asset management to participants, while
the recordkeeper provides services to the plan and the
participants. The solid arrows illustrate the payment
of fees for products and services. Participants—or the
plan or employer—may pay directly for recordkeeping
services.
In addition to paying for plan level recordkeeping ser-
vices directly from participant accounts, such services can
be paid by participants indirectly (solid arrow from par-
ticipants to investment providers) through the investment
expenses they pay for investments held in their 401(k)
accounts.
The full text of the report can be accessed at https://www.
ici.org/pdf/per22-04.pdf.
Exhibit 1 A Variety of Arrangements May Be Used to Compensate 401(k) Service Providers
Employer/Plan
Recordkeeper/
Retirement service
provider
Participants Investment provider(s)
Services provided
Fee payment/Form of fee payment
Direct fees: dollar per participant;
percentage based on assets; transactional fees
Recordkeeping/
Administrative
payment
(percentage
of assets)
Expense ratio (percentage of assets)
Direct fees: dollar per participant;
percentage based on assets;
transactional fees
Recordkeeping and administration;
plan service and consulting; legal, compliance, and regulatory
Participant service, education, advice, and communication
Asset management; investment products
Recordkeeping;
distribution
Note: In selecting the service provider(s) and deciding the cost-sharing for the 401(k) plan, the employer/plan sponsor will determine which
combinations of these fee arrangements will be used in the plan.
Source: Investment Company Institute.

12. Wolters Kluwer connects legal and business communities with timely, specialized expertise and information-enabled solutions to support productivity,
accuracy and mobility. Serving customers worldwide, our products include those under the Aspen, CCH, ftwilliam, Kluwer Law International,
LoislawConnect, MediRegs, andTAGData names.
TO SUBSCRIBE, CALL 1-800-638-8437 OR ORDER ONLINE AT WWW.WKLAWBUSINESS.COM
12 401(k) ADVISOR
October/9900504683
LAST WORD ON 401(k) PLANS
What Is the Context?
Jeffery Mandell, Esq.
T
here are always never ending countless legal changes
and initiatives with ERISA plans. I refer to regulatory
and statutory developments, and case law developed
through litigation. A recent dramatic change is the U.S.
Department of Labor’s finalization of its fiduciary definition
conflict of interest regulations. This initiative was fought
hard during the regulatory process, and now it is challenged
in court.
This piece does not debate the merits of the new law.
Many publicly applaud the new regulation, many privately
applaud it but will not publicly applaud it, and others decry
it. Might it help to put this initiative in the broader context
of ERISA?
Let’s look at the words underlying the ERISA acronym.
Employee, Retirement, Income, Security. ERISA’s objective is
unambiguous and direct. It is intended to protect employees’
retirement security. That is it. Advancing employees’ retire-
ment is ERISA’s sole purpose (except somewhat otherwise as
applicable to ESOPs). When viewing the new regulations or
other legal changes, the compelling question is whether they
advance or impede employees’ retirement security.
Many individuals, employers, and institutions have
fought hard against any number of changes in ERISA
throughout its history. I have fought some of those bat-
tles as well, and I certainly think ERISA is already a beast
without the addition of new requirements. But, again,
let’s consider the context. Many small employers hated,
and still hate, the top-heavy rules. The Internal Revenue
Code’s nondiscrimination requirements also pose difficul-
ties. Questions: Would employees who otherwise would be
left out of the retirement system be covered by a plan but
for these requirements? Would minimum contributions be
made for them? ERISA history makes clear the answers.
Some assert government should not place additional
restrictions on employers’ plans. The simple answer is that
no employer is required to have a plan. But, if the employer
wants any of the one-of-a-kind tax benefits for itself and its
employees, if the employer volunteers to have a plan, then
there are rules. No different than a speed limit.
Many opposed the fairly recent fiduciary Section 408(b)(2)
disclosures, and the participant level 404a-5 disclosures.
Again, let’s consider the context. Will/do these initiatives
promote employees’ retirement income, for example, by
educating the employer and employees, and in negotiat-
ing better fees? Should employers and employees have this
information about fees, expenses, and services?
My point is this: ERISA was created to help employees
retire. When considering the good or bad of a legal change
or initiative, it is appropriate and necessary to keep in the
forefront ERISA’s standards and broader context.
Jeffery Mandell is the President of The ERISA Law Group, P.A. in
Boise, Idaho and co-editor of this publication. He speaks, writes, and
represents clients throughout the United States. He can be reached at
208-342-5522 or at jeff@erisalawgroup.com.
While the federal courts of appeal have split on the issue of indemni-
fication, the Seventh Circuit has long held that ERISA’s grant of equitable
remedial powers and its foundation in principles of trust law permit courts
to order contribution or indemnification among co-fiduciaries based on
degree of culpability. [Free v. Briody, 732 F. 2d 1331 (7th Cir. 1984).] The
court was not inclined to overturn Free, concluding that indemnification
and contribution reside within a court’s equitable powers and are consistent
with principles of trust law within which ERISA operates.
continued from page 10