what to expect from an employee benefits security ... · (ebsa) investigation. ebsa’s mission...

Presented by Amy K. Atcha, Associate Regional DirectorChicago Regional Office - EBSAJune 7, 2012

[[ This presentation reflects the interpretations of the presenter ]]

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What to Expect from an Employee Benefits Security Administration (EBSA) Investigation

EBSA’s Mission Statement

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The mission of the Employee Benefits Security Administration is to assure the security of the retirement, health and other workplace related benefits of American workers and their families.

We will accomplish this mission by:developing effective regulations;

assisting and educating workers, plan sponsors, fiduciaries and service providers; and vigorously enforcing the law.

EBSA Organizational Chart

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Office of the Chief Accountant

Deputy Assistant Secretary for Policy

Office of Exemption Determinations Office of Enforcement Office of Policy and

Research

Office of Health Plan Standards and

Compliance Assistance

Office of Regulations and Interpretations

Deputy Assistant Secretary for Program Operations

Office of Technology and Information Services

Office of Participant Assistance

Office of Program Planning Evaluation and

Management

Regional OfficesChicago

Kansas City

Dallas

Los Angeles

San Francisco

Assistant Secretary

Boston

New York

Philadelphia

Atlanta

Cincinnati

EBSA Field Offices

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Regional OfficesDistrict Offices

EBSA - Structure

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Field OfficesConduct InvestigationsProvide Compliance Assistance

CRO’s JurisdictionNorthern 1/3 of IllinoisNorthern 1/3 of IndianaWisconsin

Based on Plan or Service Provider Location

EBSA Enforcement Strategy

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STrategic Enforcement Plan (STEP)Describes basic enforcement strategyLast published in 2000

Program Operating Plan Changes annually

Each Regional Office creates its own POPFor current fiscal year (10/01/11 – 09/30/12)

National Projects (FY 12)

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Contributory Plans Criminal Project (CPCP)

Rapid ERISA Action Team (REACT)

Employee Stock Ownership Plans (ESOPs)

Consultant/Advisor Project (CAP)

Health Benefits Security Project (HBSP)

Employee Retirement Income Security Act (ERISA)

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Applies to Employee Benefit Plans

sponsored by private sector

employers and/or unions

NOT government plans

NOT church plans

Other exclusions

ERISA Requirements - NOT

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Does NOT require a planIf there is a plan, must follow ERISA rules

Does NOT mandate any benefitsPlan sponsor decides

Does NOT establish benefit levelsPlan sponsor decides

ERISA – Basic Requirements

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Every Plan must have

governing document(s)

Named Fiduciary

Claims & Appeals Procedure

Fidelity Bond (protect against dishonesty)

ERISA – Basic Requirements

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Reporting RequirementsAnnual Report (Form 5500)

Disclosure RequirementsSummary Plan Descriptions (SPDs)Summary of Material Modifications (SMM)Summary Annual Reports (SARs)“Blackout” NoticesCOBRA Notices / HIPAA Certificates & moreParticipant Statements Provide documents on request

ERISA – Fiduciary Responsibility

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Fiduciary = any person that

1) has discretionary authority or control of

plan administration (per governing documents) - or -

2) exercises discretionary authority or control over plan management - or -

3) exercises authority or control over plan assets - or -

4) provides investment advice for compensation

ERISA – Fiduciary Responsibility

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Fiduciary must

Act “solely in interest” of Ps & Bs

Discharge his / her / its duties prudently(care, skill, prudence and diligence)

Diversify plan investments

Follow terms of governing documents(to the extent consistent with ERISA)

ERISA – Fiduciary Responsibility

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Fiduciary must NOT

act in his / her / its own self interest

act on behalf of a party with adverse interests

accept “anything of value” from those doing business w/ the Plan (kickback)

ERISA – Fiduciary Responsibility

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Fiduciaries must NOT cause the Plan to engage in a “prohibited transaction”

Sale / exchange with party in interest (PII)

Loan / extension of credit with PII

Goods, services & facilities with PII

Transfer to, use by or for the benefit of a PII

ERISA – Fiduciary Responsibility

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Party in interest (PII) includes

FiduciariesSponsoring employer / union

Officers, employees & owners

Service ProvidersOfficers, employees & owners

RelativesRelated Companiesand more

ERISA – Fiduciary Responsibility

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Plans can have multiple fiduciaries

Fiduciary Responsibility can be allocated

For example, Fiduciary A can decide all claimsFiduciary B can manage all stock investmentsFiduciary C can select all service providers

ERISA – Fiduciary Responsibility

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Fiduciaries can be held personally liable for lossesresulting from their fiduciary breach(es)

Fiduciary A can also be held personally liable for losses resulting from a breach by Fiduciary B

- if A’s failure(s) allowed B to breach- if A knowingly participated in,

or concealed, B’s breach- if A fails to take action to correct B’s breach

ERISA – Fiduciary Responsibility

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In correcting a fiduciary breach, ERISA Sec. 502(l) imposes 20% penalty

on the amount paid pursuant to a court order or settlement agreement

NOTES:

IRS can impose excise tax on prohibited transactions

Numerous other penalties for R&D failures

ERISA – Fiduciary Responsibility

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Some fiduciary breaches

may also constitute criminal violations

of ERISA, other federal law or state law

For example,

accepting kickbacks – or –

misappropriation / misuse of plan assets

Employee Contributions –an EBSA Priority

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Handling of employee contributions

Basic Rule –As soon as they can be

“reasonably segregated”

from Employer’s general assets

Safe Harbor Reg. – 1/14/10 - for plans with fewer than 100 participants at the beginning of the plan year (determined annually)

Employee Contributions

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“As soon as” varies from plan to plan

will ask questions about handling

will review practice / experience

Employee Contributions

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Outside Limits

Pension – 15 Business Days after end of month of withholding / receipt

<< SIMPLE IRA Plans – 30 days after end of month >>

Welfare – 90 days after withholding / receipt

Employee Contributions

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Outside Limits

NOT a safe harbor

Should NEVER be exceeded

In most instances, should NOT be approached

REACT

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Employer sponsors can go bankrupt

(or face severe financial distress)

Plans often suffer during this period

Bankruptcy filing may seek to continue the business (Ch. 11) – or -

cease operations (Ch. 7)

REACT

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EBSA Concerns

Plan rules re: terminationSponsor intentions re: winding up plan affairsPlan fiduciary in place Employee contributionsUnpaid claimsInvestments / transactions with plan sponsor

ESOPs

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Unique Characteristics

Both Employee Benefit Plan

& Corporate Financing Tool

ESOPs

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EBSA concerns

Must be consistent with Governing Documents

Must be “qualifying” employer securities

Prudence

Valuation

Distribution / Liquidity Issues

ESOPs

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EBSA concerns

Purchase PriceAcquired from whom

Acquisition indebtednessMust adhere to ERISA & IRC rulesTerms of loan involvedRelease & allocation of shares as loan is paid

Loan Re-financingsMust adhere to FAB 2002-1

Consultant / Advisor Project (CAP)

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Many plans rely heavily on their consultants / advisors

Recent experience has identified numerous instances of improper & undisclosed compensation

Plan officials need to monitor their service providers know what their service providers are receiving

(from all sources)

Sources of Cases

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Participant complaints

Form 5500 Reviews

Referrals from other agencies

Media

Types of Investigations

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CivilPlanService Provider

CriminalPlanService ProviderEmployerIndividual

Civil Plan Investigations

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Start with phone call from Investigator / Auditor

Followed by confirmation letter

Date & time of visit

Plan(s) to be reviewed

Records / documents needed

o Varies depending on issue

Initial Interview

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Basic operations / servicesContributionsBenefit paymentsExpensesInvestments

Identification of FiduciariesService providersRecord-keeper(s)

Initial Interview

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Ensure all requested documents

have been made available

Arrange for access to

any additional documents required

Arrange for additional interviews

Basic Documents

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Plan Document / Trust Agreement

Form 5500 filings (past 3 years)

SPD

SAR for last year

Fidelity Bond

Fiduciary Insurance Policy

Trustee Statements (past 3 years)

Service Provider Contracts

Meeting Minutes

Additional Documents

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Vary depending on type of plan

o Pension vs. welfare

o Union vs. non-union

o Funded / insured / unfunded

o Contributory or not

Additional Documents

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Vary depending on structure of plan

o Board of Trustees

o Operating Committees

o Administration

o Investment Management

Additional Documents

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Vary depending on issues to be reviewed

o Contributionso Benefit payments / distributionso Administrative expenseso Investmentso Relationships with Service Providerso Internal Controls

Subpoenas

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ERISA grants DOL (EBSA) the power to “enter such places, inspect such books and records and question such persons … as deemed necessary”

DOL (EBSA) has the authority to issue subpoenas requiring the production of documents or testimony

Concluding the Investigation

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Depends on any problems identified

If no problems are noted, closing letter

If problems are noted,

corrective actions are necessary

Corrected Pre-Investigation

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EBSA encourages self-correction

Fiduciaries should regularly review operations

Upon detection, take corrective action(s)

Correction guidance is in VFCP documentation

Call EBSA for assistance

Corrected During Investigation

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Often, potential problems become clearConversations with Investigator

Documents being reviewed

If fiduciary knows what problem is

and necessary corrections are, fix it

Correction guidance – see VFCP

Needing Correction

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Usually, EBSA will send “Notice Letter”Identifies problemsOffers chance to discuss correction

EBSA encourages Voluntary Compliance

Proper Correction >> “Closing Letter”Identifies problems & corrective actions

No Correction >> referral to the Solicitor’s Office

Needing Correction

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Depending upon the circumstances, EBSA may seek

Correction of prohibited transactionsRestoration of lossesPenaltiesRemoval of fiduciariesRemoval of service providersAppointment of independent fiduciaryImplementation of new internal controlsSupplemental distributions to Ps & BsFinal accounting & termination of plan

IRS Referrals

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IRS Coordination Agreement requires

referral of prohibited transactions to IRSIRC § 4975 excise tax(tax qualified pension plans)

referral of potential issues affecting tax qualified status

Criminal Referrals

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Under some circumstances,

criminal referrals may be made

Theft / embezzlement

Kickbacks / bribes

False statements to investigators

Willful failures to file / false filings

Health care fraud

What is the VFC Program?

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Allows “Plan Officials” to correct certain violations before DOL investigates and if done properly, receive a “No-Action” letter from the Department.

DOL NO ACTION DOL“You fixed it”

VFCP

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Must not be already “Under Investigation”

Cannot involve Criminal activity

Must be one of 19 “Eligible” Transactions

No user / application fees

VFCP

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“Self-help” program

Correction methods specified in Regs

Submit complete applications to Field Office

EBSA issues “No Action” Letter

Some transactions eligible for excise tax relief

Compliance Assistance

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Office of Regulations & InterpretationsAdvisory Opinion Letters, Regulations,

Technical Rulings

(202) 693 - 8500

Office of Exemptions & DeterminationsExemptions from Prohibited Transaction Rules

Class & Individual basis(202) 693 - 8540

Compliance Assistance

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Office of Chief AccountantReporting & Disclosure issues

(202) 693 - 8360

Office of Health Plan Standards

& Compliance AssistanceCOBRA, HIPAA & other group health laws

(202) 693 - 8335

Compliance Assistance

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EBSA website: www.dol.gov/EBSAEFAST website: www.efast.dol.gov

Publications: 1-800-998-7542

Technical Assistance (Toll-free number):1-866-444-3272

EFAST Hotline (Toll-free number):1-866-463-3278 (Go EFAST)

Compliance Assistance

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Chicago Regional Office

U.S. Department of Labor – EBSA

230 S. Dearborn, Suite 2160

Chicago, IL 60604

(312) 353-0900

Helpful EBSA Publications

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Meeting Your Fiduciary Responsibilities

Tips for Selecting / Monitoring Service ProvidersSelecting / Monitoring Pension ConsultantsSelecting an Auditor for Your EB Plan

Understanding Retirement Plan Fees & Expenses401(k) Plan Fee Disclosure Form

Reporting and Disclosure Guide

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Questions ???