DOL Investigations

1
DOL Investigations

• 2006 Western Benefits Conference
• July 17, 2006
• Presented by
• Jean Ackerman, EBSA
• R. Bradford Huss, Esq., APM

2
Introduction

• Employee Benefits Security Administration
• ERISA Enforcement
• Todays Topics
• National Enforcement Projects
• West Coast Regional Enforcement Projects
• Criminal Investigations
• The Investigative Process
• Other Hot Issues
• Voluntary Fiduciary Correction Program

3
EBSA National Enforcement Projects

• Employee Contributions Project
• REACT (Bankruptcy)
• Abandoned (Orphan) Plans
• Health Fraud/MEWAs
• Employee Stock Ownership Plans (ESOPs)

4
Delinquent Employee Contributions

• Failure to forward employee withholds in a timely
  manner
  
• ERISA Reg. 29 CFR 2510.3-102
• Advisory Opinion 2002-02A (May 2002)
• Field Assistance Bulletin 2003-2 (May 2003)

5
Bankruptcy and Financially Distressed Plan
Sponsors

• Rapid ERISA Action Team (REACT)
• Preserve plan assets
• Determine whether the sponsor has made all
  required contributions
  
• Ensure plans rights are protected
• Identify responsible fiduciaries

6
Bankruptcy and Financially Distressed Plan
Sponsors

• Abandoned (Orphan) Plans
• Actions by EBSA
• Locate a Plan fiduciary
• If necessary, obtain a court-appointed
  Independent Fiduciary
  
• Correct ERISA violations

7
Bankruptcy and Financially Distressed Plan
Sponsors

• Effective May 22, 2006
• Voluntary program for DC plans
• Financial institutions holding plan assets
• Determine abandonment
• Terminate plan
• Distribute account balances

8
Overview Terminating Abandoned Plans
QTA determines that the plan has been abandone
d
QTA winds up the plans affairs
After 90 days, plan is deemed terminated
QTA Notifies EBSA
QTA Notifies EBSA
QTA Qualified Termination Administrator
9
Health Fraud/MEWAs

• Civil Enforcement Actions
• Temporary Restraining Order (TRO)
• Pursue Monetary Judgments
• Bar from future Plan association
• Appointment of Independent Fiduciary
• Criminal Enforcement Actions
• Seizure of Assets
• Forfeiture of Assets
• Criminal Penalties
• 13 year bar
• Knowing violation of bar causes additional
  criminal violations

10
Employee Stock Ownership Plans

• Potential ERISA Violations
• Failure to properly value employer security
• Fraudulent valuations
• Optimistic valuations
• Dated valuations
• Refinancing of ESOP loans
• Application of FAB 2002-1

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West Coast Regional Projects

• Taft-Hartley Plan Administration
• Focus on Administrative Practices
• Monitoring service providers
• Monitoring plan investments
• Internal controls
• Policies and procedures that ensure plan
  participants receive benefits promised
  
• Understanding and monitoring plan expenses

12
West Coast Regional Projects

• Demutualization
• Management and Administration of Plan Assets
  Received as a Result of a Demutualization
  
• Plan assets include funds received from Insurance
  Company as a result of a demutualization to the
  degree the funds represent Plan participant
  premium payments
• Plan fiduciaries have a responsibility to handle
  these assets in accordance with ERISA

13
West Coast Regional Projects

• Fees
• Settlor Fees
• AO 2001-01A 1/1/2001
• Plan decisions/activities vs Sponsor/Employer
  decisions/activities
  
• Float Fees
• Field Bulletin 2002-3 11/5/2002
• Obligation to Disclose

14
West Coast Regional Projects

• Fees
• Allocation of Expenses to Defined Contribution
  Plans
  
• Field Bulletin 2003-3 5/19/03
• The allocation of expenses among Plan
  participants
  
• Payment of Direct Expenses
• AO 89-9A 6/13/1989
• Reimbursement to SP sponsor for administration
  services is not necessarily prohibited
  
• AO 93-06A 3/11/1993
• Reimbursement to SP sponsor for investment
  manager is not necessarily prohibited
  

15
West Coast Regional Projects

• Corporate Fraud
• Focus of Investigations
• Decline in Plans employer stock holdings
• Fraud or Mismanagement
• Accounting Irregularities
• Misrepresentations or Omissions from Financial
  Statements
  
• Fraudulent or Corrupt Business Practices

16
Criminal Investigations

• ERISA Criminal Statutes
• Section 411 ERISA Bar
• Section 501 Reporting
• Section 511 Coercive Interference

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Criminal Investigations

• Title 18 The Big Three
• 18 USC Sections 664, 1027 1954 Embezzlement
  False Records Kickbacks
  
• Health Care Penalties
• 18 USC Sections 669, 1035, 1347 Embezzlement,
  False Records, Health Care Fraud
  
• Other Relevant Criminal Statutes
• Mail, Wire, Conspiracy, Money Laundering, etc.

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Red Flags

• Concealment
• Falsification, false statements, destruction of
  records
  
• Extravagant personal gain
• Flagrant disobedience of instructions
• Others

• Transactions different from usual course of
  action
  
• Evasiveness, unresponsiveness
• Missing records
• Flight

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Investigative Process

• Statutory Grant of Investigative Power
• ERISA section 504(a)
• Subpoena authority
• Disclosure of information between IRS and DOL

20
Investigative Process

• EBSA Investigative Procedure
• Enforcement Guidelines
• Nondisclosure of basis of investigation
• Enforcement Manual

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Potential Areas of Investigation

• Fiduciary Duties
• Co-fiduciary Liability
• Plan Expenses and Operations
• Plan Investments
• Prohibited Transactions
• Employer Securities
• Real Estate Holding
• Claims Procedures
• Bonding, Reporting, Disclosure

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Document Requests

• Plan Documents
• Financial Records
• Accountants Records
• Service Agreements and Contracts
• Claims Payment Records
• Minutes of Meetings
• Plan Asset Records, including appraisals
• Fidelity Bond
• IRS Determination Letter

23
Interviews

• Explain fiduciary decisions
• Describe processes
• Forwarding employee contributions
• False Statements
• 18 USC Section 1001

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Resolution of the Investigation

• No violations
• Violations detected but no further action
  warranted
  
• Voluntary Compliance settlement
• Civil litigation
• Civil money penalties
• IRS referral
• Disclosure of investigative results

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Correction of Violations

• General Rule
• The Plan must be made whole
• Prohibited Transactions
• DOL PTCE 94-71
• Civil Penalties
• ERISA Section 502(l)
• Amount
• Waiver or Reduction of Penalty by DOL
• Penalty Offset by PT Excise Tax

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Other Hot Issues

• Trading practice issues
• Insurance broker practices
• PTE 77-4 Investment in proprietary mutual
  funds
  
• Fees and expenses
• Selection and monitoring of service providers
• See DOL and SEC Tips for Selecting and Monitoring
  Pension Consultants

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Voluntary Fiduciary Correction Program

• Avoid investigation
• Avoid civil penalty
• Avoid excise tax
• Do the right thing!

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Contact Points

• EBSA website www.dol.gov/ebsa
• Technical Assistance nationwide-
• 1-866-444-EBSA (3272)
• Publications 1-800-998-7542
• Kansas City Office (816).426-5131
• Los Angeles Office [phone]
• San Francisco Office [phone]
• Seattle District Office [phone]