Implementing a Medicare Implementing a Medicare Compliance ProgramCompliance Program

Implementation of Medicare Implementation of Medicare Compliance ProgramCompliance Program

Implementation of Medicare Implementation of Medicare Compliance ProgramCompliance Program

• Rules & procedures to reduce chance of wrongdoing

• High level manager to oversee the program

• Procedures in place to preclude delegating responsibilities to person who has previously engaged in known illegal activities

Implementation of Medicare Implementation of Medicare Compliance ProgramCompliance Program

Implementation of Medicare Implementation of Medicare Compliance ProgramCompliance Program

• Effective employee communication regarding their obligations

• Monitoring, audit systems, & private reporting mechanisms to achieve compliance

• Consistent enforcement & discipline

Implementation of Medicare Implementation of Medicare Compliance ProgramCompliance Program

Implementation of Medicare Implementation of Medicare Compliance ProgramCompliance Program

• Appropriate, consistent, & documented responses to compliance violations

• Documented sanctions for failure to detect violations

• Documented program revisions to preclude future violations

ERISAERISA

Employee Retirement Income Security Act

Purpose of ERISAPurpose of ERISAPurpose of ERISAPurpose of ERISA

• To protect participant & beneficiary rights & interests in benefit plans

Responsible Parties in Responsible Parties in Managing a Retirement Managing a Retirement

ProgramProgram

Responsible Parties in Responsible Parties in Managing a Retirement Managing a Retirement

ProgramProgram• Plan Administrator–Multiple duties

• Trustee–Makes investment decisions in terms

of company to utilize

Responsible Parties in Responsible Parties in Managing a Retirement Managing a Retirement

ProgramProgram

Responsible Parties in Responsible Parties in Managing a Retirement Managing a Retirement

ProgramProgram

• Investment Manager–Makes investment decisions for plan

assets assigned to it

• Board or Plan Sponsor–The employer organization has

multiple responsibilities

Definition of Retirement Plan Definition of Retirement Plan AssetsAssets

Definition of Retirement Plan Definition of Retirement Plan AssetsAssets

• Employer contributions

• Employee contributions

Definition of Retirement Plan Definition of Retirement Plan AssetsAssets

Definition of Retirement Plan Definition of Retirement Plan AssetsAssets

• Types of plan assets–Publicly traded securities

–Securities representing investment in registered investment company

–Securities representing investment in an operating company

–Equity interest in an entity

Fiduciary Duty of Responsible Fiduciary Duty of Responsible PartiesParties

Fiduciary Duty of Responsible Fiduciary Duty of Responsible PartiesParties

• Pertains to decisions made with respect to investment of plan assets

What is a FiduciaryWhat is a FiduciaryWhat is a FiduciaryWhat is a Fiduciary

• Person carrying a duty of trust

• Discretionary authority-management

• Providing investment advice

• Administration

Who are the Fiduciaries to an Who are the Fiduciaries to an ERISA PlanERISA Plan

Who are the Fiduciaries to an Who are the Fiduciaries to an ERISA PlanERISA Plan

• Trustees of plan

• Persons active in administration of plan

• Investment managers

• Investment advisors

• Persons who select these parties –Board of Directors

Four Duties of FiduciariesFour Duties of FiduciariesFour Duties of FiduciariesFour Duties of Fiduciaries

• Exclusive purpose rule

• Prudent person rule

• Prudent diversification rule–Section 404c of ERISA code

–Cash, income, growth, & aggressive growth

• Adherence to plan document rule

Investment Responsibilities of Investment Responsibilities of FiduciariesFiduciaries

Investment Responsibilities of Investment Responsibilities of FiduciariesFiduciaries

• Appropriate consideration

• Performance monitoring

• Right to delegate

Fiduciary Liability: Fiduciary Liability: Breach of DutyBreach of Duty

Fiduciary Liability: Fiduciary Liability: Breach of DutyBreach of Duty

• Breach causes loss to the plan

• Breach allowed fiduciary to profit from use of plan assets

• Court determines remedial relief is appropro

Fiduciary Liability: Fiduciary Liability: Breach of DutyBreach of Duty

Fiduciary Liability: Fiduciary Liability: Breach of DutyBreach of Duty

• Co-fiduciary liability–One fiduciary conceals wrong doing of

another fiduciary

–One fiduciary enables another to breach duty

–One fiduciary knows of another’s breach

–Liability of co-fiduciaries is joint & several

ERISA Provisions Reducing ERISA Provisions Reducing Fiduciary Liability Exposures Fiduciary Liability Exposures

of Trusteesof Trustees

ERISA Provisions Reducing ERISA Provisions Reducing Fiduciary Liability Exposures Fiduciary Liability Exposures

of Trusteesof Trustees• Appoint an investment manager

• Investment direction provided by named fiduciary

• Written statement of duties of each fiduciary

• Written statement of duties of each non-fiduciary

ERISA Provisions Reducing ERISA Provisions Reducing Fiduciary Liability Exposures Fiduciary Liability Exposures

of Trusteesof Trustees

ERISA Provisions Reducing ERISA Provisions Reducing Fiduciary Liability Exposures Fiduciary Liability Exposures

of Trusteesof Trustees• Establishment of separate trusts for

separate management of assets

• Indemnification of fiduciaries by plan sponsor

• Guarantee of participant directed investment choices–Section 404c, ERISA

Safeguards to Reduce Safeguards to Reduce Liability ExposureLiability Exposure

Safeguards to Reduce Safeguards to Reduce Liability ExposureLiability Exposure

• Communicate funding policy to persons responsible for asset management

• Document all decisions in writing

• Set deadlines for actions & monitor progress

• Retain experts for input & advice

Safeguards to Reduce Safeguards to Reduce Liability ExposureLiability Exposure

Safeguards to Reduce Safeguards to Reduce Liability ExposureLiability Exposure

• Set goals & objectives for evaluation– i.e. percent return for investments

• Periodically review performance of persons responsible for investments

• Appoint outside expert to conduct audit

Safeguards to Reduce Safeguards to Reduce Liability ExposureLiability Exposure

Safeguards to Reduce Safeguards to Reduce Liability ExposureLiability Exposure

• Document all fiduciary & non-fiduciary appointments & terminations

• Review all proposed transactions to assure they are not prohibited

• Keep records of all votes by trustees

Safeguards to Reduce Safeguards to Reduce Liability ExposureLiability Exposure

Safeguards to Reduce Safeguards to Reduce Liability ExposureLiability Exposure

• Assure that the only expenses paid out of plan assets are plan investment & plan administration expenses

• Assure that appropriate information in being provided to participants & beneficiaries– i.e. annual reports, benefit statements,

plan description

Prohibited TransactionsProhibited TransactionsProhibited TransactionsProhibited Transactions

• Extensions of credit between parties in interest (fiduciaries)

• Investing in non-qualified assets– i.e. employer owned property

• Self-dealing–Conflicting interests

Fiduciary Liability Insurance & Fiduciary Liability Insurance & BondingBonding

Fiduciary Liability Insurance & Fiduciary Liability Insurance & BondingBonding

• Fiduciary liability insurance available–Only on claims made basis

–Only available in limited amounts

–Employer (plan sponsor) can indemnify plan fiduciaries with employer’s assets

Fiduciary Liability Insurance & Fiduciary Liability Insurance & BondingBonding

Fiduciary Liability Insurance & Fiduciary Liability Insurance & BondingBonding

• Bonding required by ERISA–Protects plan against fraud &

dishonesty by plan official

–Every fiduciary must be bonded

–Amount of bond must be 10% of amount of funds handled but not more than $500K