It May be Easier to “Just Say No”
Whether to accept certain gifts from service providers and what to track for reporting on the IRS Form 5500 can be complicated. With all of the other complexity you have as a retirement plan sponsor or fiduciary, it may be easier to “just say no”. “Just say no” means no worries, no tracking of gifts and allows you to avoid any appearance of conflict of interest or a potential prohibited transaction.
What does the Department of Labor say about gifts?
There are no regulations on this topic, yet gifts are considered fiduciary compensation and are subject to the prohibited transaction rules. The DOL gives its plan auditors guidance in the EBSA Enforcement Manual (the Manual) section, “Fiduciary Violations Involving Gifts and Gratuities”. The section title alone should catch every plan sponsor and fiduciary’s attention. Although your retirement plan may never be subjected to a DOL audit, if it is, the topic of gifts may come up.
The Manual gives a few examples of gifts like meals, tangible items, golf outings and other entertainment, or expenses associated with educational conferences. It tells the auditor to determine whether the gifts were received in connection with transactions involving the assets of the plan and whether the fiduciary violated a written policy or plan provision about receipt of gifts.
Now, don’t be alarmed if you have accepted a coffee mug, a pen or a reasonably-priced business lunch. Re-gifting is not required. Here’s what you should know:
The Manual outlines certain gifts that the auditor should treat as insubstantial and/or not in violation for purposes of enforcement:
Gifts, gratuities, meals, and entertainment from any one entity that does not exceed $250 in aggregated annual value and does not violate any plan policy or provision. (Never accept cash or gift cards – these are specifically excluded)
Reimbursement to a plan of expenses (in excess of $250) that are associated with a plan’s representative’s attendance at an education conference provided that a plan fiduciary determined in advance (without regard to the proposed reimbursement), and in writing that:
The plan’s payment of education expenses was prudent
The expenses were consistent with a written policy or provision designed to prevent abuse,
The conference had a reasonable relationship to the duties of the plan representative, and
The expenses were reasonable in light of the benefits the plan could receive and that attendance is unlikely to compromise the plan representative’s ability to carry out fiduciary duties
What does the IRS want to know about gifts?
Generally, the IRS does not require you to report the following on Form 5500:
Occasional gifts or meals of insubstantial value
$100 aggregate gift annually for the entire plan, plan source
Each individual gift of less than $50
Gifts under $10 do not have to be counted toward the $100 limit
Notice that the DOL and IRS thresholds for “insubstantial value” are different.
Notice that the DOL Manual mentions a specific process for the fiduciary committee to follow regarding educational conferences.
If your company has its own policy about gifts, it would be easy for the fiduciary or non-fiduciary plan representative to confuse the details of the company policy with any policy or informal agreement that the fiduciary committee establishes
What To Do
Your fiduciary committee should have a discussion about gifts. All fiduciaries and plan representatives need to understand that gifts can be considered compensation arising from dealing with plan assets. It is important to have a gift tracking method for Form 5500 reporting. Many ERISA attorneys advise against having a written policy if you can’t be certain it will be followed. Others may suggest a written policy or an informal agreement.
This blog is not intended to provide educational information, not legal advice. You should seek legal advice from a qualified ERISA attorney.