Fact Pattern

You are the head of HR of Food-First, Inc., a supermarket chain with 10,000 stores and 90,000 employees. Food-First has a retirement plan and a group health insurance benefit plan for its employees. Both plans are subject to ERISA. Sixty percent of the employees are participants of both plans, and forty percent do not currently participate in either plan. Food-First is interested in increasing enrollment for both plans.

The named fiduciary for the group health insurance benefit plan is Bobby Smith. Bobby own 1,000 refrigerated trucks. He has a nice little business delivering fresh fruit and vegetables to supermarkets around the country. Bobby has not been very good at keeping records, and he recently discovered that some of his trucks had been delivering strawberries to Food-First's supermarkets in Ohio. Bobby did not put a stop to the Ohio deliveries and he did not investigate further to see if any of his other trucks were delivering fruit and vegetables to Food-First supermarkets in other states. Additionally, each year, Bobby has his refrigerated trucks deliver fresh blueberries to Food-First's Annual Group Health Insurance Plan Open-Enrollment Picnic, in which employees get to eat blueberries and chocolate and enroll in the company's group health insurance plan. Bobby does not charge Food-First for delivering the blueberries. His trucks do have large painted signs that state: "Bobby's Refrigerated Trucks - Delivering Fresh Fruit and Vegetables to Local Grocers Since 1999."

The named fiduciary for Food-First's retirement plan is Sandra Lee. Sandra runs a talent-management company that specializes in supermarket advertising models. Sandra on occasion has some of her supermarket advertising models appear on local TV ads for Food-First, Inc. Sandra does not get paid any commission for placing the advertising models. The models get paid directly by Food-First. Additionally, this last year four of Sandra's models appeared in an ad that was created solely for Food-First's 90,000 employees. The ad was part of a new campaign to get more of Food-First's employees to sign up for the company's retirement plan. Again, the models were paid directly by Food-First, and Sandra did not charge any commission for helping get the transaction done.

Questions

After watching the lecture for Module 13 and reviewing the PowerPoints, and reading Meeting Your Fiduciary Responsibilities

and Understanding your Fiduciary Responsibilities Under a Group Health Plan

,

• Please review the following excerpts of ERISA 1106 and 1002(14), AND
• Formulate memo for the board of directors explaining what if any violations of 1106 have occurred, due to the actions of Bobby and Sandra.

1106. Prohibited transactions

(a) Transactions between plan and party in interest

[....]

(1) A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect

(A) sale or exchange, or leasing, of any property between the plan and a party in interest;

(B) lending of money or other extension of credit between the plan and a party in interest;

(C) furnishing of goods, services, or facilities between the plan and a party in interest;

(D) transfer to, or use by or for the benefit of a party in interest, of any assets of the plan;....

(b) Transactions between plan and fiduciary

A fiduciary with respect to a plan shall not

(1) deal with the assets of the plan in his own interest or for his own account,

(2) in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, or

(3) receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.

1002(14). Definitions

The term "party in interest" means, as to an employee benefit plan

(A) any fiduciary (including, but not limited to, any administrator, officer, trustee, or custodian), counsel, or employee of such employee benefit plan;

(B) a person providing services to such plan;

(C) an employer any of whose employees are covered by such plan;....