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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
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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.
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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
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EBSA Field Offices
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Regional OfficesDistrict Offices
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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
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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)
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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)
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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
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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
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ERISA – Basic Requirements
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Every Plan must have
governing document(s)
Named Fiduciary
Claims & Appeals Procedure
Fidelity Bond (protect against dishonesty)
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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
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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
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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)
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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)
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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
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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
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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
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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
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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
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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
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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)
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Employee Contributions
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“As soon as” varies from plan to plan
will ask questions about handling
will review practice / experience
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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
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Employee Contributions
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Outside Limits
NOT a safe harbor
Should NEVER be exceeded
In most instances, should NOT be approached
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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)
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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
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ESOPs
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Unique Characteristics
Both Employee Benefit Plan
& Corporate Financing Tool
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ESOPs
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EBSA concerns
Must be consistent with Governing Documents
Must be “qualifying” employer securities
Prudence
Valuation
Distribution / Liquidity Issues
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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
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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)
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Sources of Cases
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Participant complaints
Form 5500 Reviews
Referrals from other agencies
Media
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Types of Investigations
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CivilPlanService Provider
CriminalPlanService ProviderEmployerIndividual
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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
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Initial Interview
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Basic operations / servicesContributionsBenefit paymentsExpensesInvestments
Identification of FiduciariesService providersRecord-keeper(s)
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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
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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
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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
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Additional Documents
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Vary depending on structure of plan
o Board of Trustees
o Operating Committees
o Administration
o Investment Management
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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”
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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
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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
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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
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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
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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)
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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
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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 ???