In August 2008, the Department of Labor's Employee Benefits Security Administration ("EBSA") amended its enforcement manual by adopting a new enforcement policy on gifts and gratuities, providing some comfort on enforcement issues previously raised by the EBSA staff.

The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), affects gifts and gratuities in two ways. First, the ERISA prohibited transaction rules contain an "anti-kickback" provision, section 406(b)(3), which prohibits a plan fiduciary from receiving consideration for his or her own personal account from a party dealing with the plan in connection with a transaction involving the assets of the plan. Second, ERISA added a provision to the federal criminal code that imposes criminal penalties (fines and imprisonment) on a plan administrator, officer, trustee, or certain others who receive or agree to receive or solicit any fee, kickback, gift, or other things of value with the intent to be influenced on any matters concerning the plan, as well as on the person who makes or offers to make the prohibited payment.

The question of whether de minimis gifts violate these provisions initially received attention following a speech by the EBSA Director of Enforcement, who indicated that gifts of any amount could trigger civil and criminal enforcement action. This raised concerns about the risks that could arise from such routine practices as giving small gifts (e.g., pens and sports tickets), and from the common practice of benefit plan service providers inviting plan trustees or other plan fiduciaries to attend free educational conferences or similar events. These issues were also receiving attention at the same time as a result of a "sweep" examination by the Securities and Exchange Commission staff of benefit plan consultants. EBSA did not provide any formal guidance at the time.

The issue received attention again in 2007 in connection with proposed changes to the reporting of benefit plan service provider compensation on the Form 5500 annual reports filed with the government by ERISA plans. In response to the proposed reporting of business meals, gifts, promotional items and other similar non-monetary forms of compensation, commenters said that the proposal would require costly tracking of typical business expenses only remotely connected to the particular benefit plans. Recognizing that occasional and insubstantial free meals, gifts and promotional times should be excepted from reporting, EBSA modified the reporting requirements to exclude ordinary business gifts of insubstantial value (less than $50 each and no more than $100 from any one source during a single year), such as imprinted pens and ordinary business lunches, where the cost would be tax deductible to the person providing the gift or meal and not to the recipient. In the Form 5500 instructions, however, EBSA cautioned that these thresholds were for reporting purposes only, and that the receipt of gifts and gratuities of any amount by plan fiduciaries "may violate ERISA and give rise to civil liabilities and criminal penalties." Thus, while providing some comfort, the changes served to emphasize, this time as part of a regulatory proceeding, the risk involved in receiving gifts and gratuities of any value.

The most recent development was a change to the ERISA Enforcement Manual maintained by EBSA's Office of Enforcement, the current version of which is available on the EBSA website. The manual's section on fiduciary investigations (Chapter 48) was updated to add a new subsection entitled "Fiduciary Violations Involving Gifts and Gratuities." This subsection says that where an investigation discloses possible fiduciary violations involving a plan fiduciary's acceptance from a party dealing with the plan of consideration, such as meals, gifts, entertainment, or expenses associated with educational conferences, the investigator should determine whether they were received for the fiduciary's personal account and in connection with a transaction involving plan assets, thereby violating section 406(b)(3). It also instructs the investigator to determine whether the fiduciary or plan maintained a reasonable written policy or plan provision governing these matters, and whether the fiduciary adhered to that policy.

After these general instructions regarding what would constitute a violation, the Manual describes what should not be considered a violation. First, the investigator should treat as insubstantial, and thus not as an apparent violation, the receipt by a fiduciary (or the fiduciary's relatives) of gifts, gratuities, meals, or entertainment (other than cash or cash equivalents), or of reimbursement of expenses associated with educational conferences, where the aggregate annual value from any one party is less than $250 and the receipt does not violate any plan policy or provision. Second, the investigator should not treat a reimbursement of expenses for attendance at an educational conference as a violation of section 406(b)(3) if a plan fiduciary reasonably determined in writing, in advance and without regard to whether the expenses would be reimbursed, that (a) the plan's payment of educational expenses in the first instance was prudent, (b) the expenses were consistent with a written plan policy or provision designed to prevent abuse, (c) the conference had a reasonable relationship to the duties of the attending plan representative, and (d) the expenses for attendance were reasonable in light of the benefits afforded to the plan by such attendance and unlikely to compromise the plan representative's ability to carry out his or her duties faithfully in accordance with ERISA.

The establishment of a $250 de minimis test should help address concerns about the enforcement risk of minor gifts that are difficult to track or quantify. The guidance on educational expense reimbursements is also helpful, permitting the continuation of generally accepted practices that are not harmful and in many ways benefit plans. At the same time, these are no-enforcement positions, not interpretive guidance, which EBSA may change at any time.

This article is presented for informational purposes only and is not intended to constitute legal advice.