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The Employee Benefits Security Administration published this manual
solely for
the internal administrative use of its employees. This manual does not restrict
or limit in any way the Employee Benefits Security Administration's discretion
in carrying out responsibilities imposed on the Secretary of Labor by the
Employee Retirement Income Security Act. Nothing in this manual is intended to
be an interpretation of law or regulation or to serve as guidance for persons
outside the Department of Labor. Nor does this manual confer on any person,
including one who is the subject of an Employee Benefits Security Administration
investigation or enforcement action, a right to rely on any policy or procedure
stated herein, or otherwise create any other substantive or procedural rights.
Examples include:
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Failing to
operate the plan prudently and for the exclusive benefit of
participants.
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Using plan assets to
benefit certain related parties to the plan, including the plan
administrator, the plan sponsor, and parties related to these
individuals.
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Failing to properly value
plan assets at their current fair market value, or to hold plan assets in
trust.
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Failing to follow the terms of the plan (unless inconsistent with
ERISA).
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Failing to properly select and monitor service providers.
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Taking any adverse action
against an individual for exercising his or her rights under the plan (e.g.,
being fired, fined, or otherwise being discriminated against).
EBSA also conducts investigations of criminal
violations regarding employee benefit plans such as embezzlement, kickbacks,
and false statements under Title 18 of the U.S. Criminal Code. Prosecution of
these criminal violations are handled by U.S. Attorneys' offices,
see Criminal Enforcement News Releases. Title 18
contains three statutes which directly address violations involving employee
benefit plans:
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Theft or Embezzlement from
Employee Benefit Plan (18 U.S.C. Section 664)
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False Statements or Concealment
of Facts in Relation to Documents Required by the Employee Retirement Income
Security Act of 1974 (18 U.S.C. Section 1027)
-
Offer, Acceptance, or
Solicitation to Influence Operations of Employee Benefit Plan (18 U.S.C.
Section 1954).
ERISA also contains the following criminal
provisions:
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Section 411, Prohibition
Against Certain Persons Holding Certain Positions
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Section 501, Willful Violation
of Title I, Part 1
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Section 511, Coercive
Interference. Persons convicted of violations enumerated in section 411 are
subject to a bar from holding plan positions or providing services to plans for
up to 13 years.
Decisions to seek criminal action turn on a
number of factors including:
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The egregiousness and magnitude
of the violation
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The desirability and likelihood
of incarceration both as a deterrent and as a punishment
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Whether the case involves a
prior ERISA violator.
If an investigation reveals a violation of the
civil provisions of ERISA, EBSA takes action to obtain correction of the
violation. It is EBSA's policy to promote voluntary compliance with ERISA
whenever possible. Making corrections to plans includes paying amounts to
restore losses, disgorging profits, and paying penalty amounts (when
applicable). Labor Department attorneys work with field offices to provide
every opportunity for fiduciaries to comply with ERISA. If the persons involved
take the proper corrective action, the department will not bring a civil
lawsuit with regard to the issues involved. When voluntary compliance is not
achieved, EBSA may refer a case to Labor Department attorneys for litigation.
Plan assets recovered by EBSA go directly back to the plans and participants
involved. See the agency's results fact
sheet for the enforcement accomplishments for the last fiscal
year.
EBSA seeks to focus its enforcement resources on
areas that have the greatest impact on the protection of plan assets and
participants' benefits. To accomplish this goal, EBSA has identified certain
national enforcement projects in which field offices are to place particular
investigative emphasis.
A Multiple Employer Welfare Arrangement
(MEWA) is
a welfare benefit plan or other arrangement which is set up to benefit the
employees of two or more employers. When small employers are either unable to
find or can't afford the cost of health care coverage for their employees, they
may look to MEWAs for coverage. EBSA continues to find instances where MEWAs
have been unable to pay claims as a result of insufficient funding and
inadequate reserves, or in the worst situations, where they were operated by
individuals who drained the MEWA's assets through excessive administrative fees
or by outright theft. EBSA's emphasis is on abusive and fraudulent MEWAs
created by unscrupulous promoters which sell the promise of inexpensive health
benefit insurance, but default on their obligations.
EBSA also investigates related criminal activities involving welfare benefit plans. Numerous schemes investigated by EBSA in the last few years have
involved mail fraud, wire fraud, bankruptcy fraud, and other ERISA crimes.
These criminal MEWA cases, which are prosecuted for the department by U.S.
Attorneys' offices, have resulted in jail sentences and court ordered
restitution against fraudulent MEWA operators.
Since 1995, EBSA has pursued an aggressive
enforcement project intended to safeguard employee contributions to 401(k)
plans and health care plans by investigating situations in which employers
delay forwarding employee contributions into these plans. In some cases,
employers do not promptly forward the contributions to the appropriate funding
vehicle. In other cases, the employer simply converts the contributions to
other uses, such as business expenses. Both scenarios may occur when the
employer is having fiscal problems and turns to the plan for unlawful
financing. The department's revised participant contribution regulation,
effective February 3, 1997, states that such contributions for a pension plan
become plan assets as soon as they can reasonably be segregated from the
employer's general assets, but in no event later than fifteen business days
after the end of the month the contributions are withheld from employees' pay.
The national Employee Contributions Project has
generated considerable attention from Congress, participants, service
providers, and the media. By raising public awareness, the project increased
further the volume of participant complaints, which can be valuable leads. An
intended impact of the publicity was to put employers on notice that the
department would vigorously pursue recoveries of diverted contributions and
earnings. So far, as of September 30, 2005, the department has monetary results of
$380 million for participants in 401(k) plans, and has obtained 159 indictments. For fiscal year
2005, the department has monetary results of $42.8 million and has obtained
18 indictments. The department has monetary results of over $29 million in employee contributions
and claims paid in its health plan investigations.
In carrying out its responsibility to protect
participants' and beneficiaries' benefits, EBSA has targeted populations of
plan participants who are potentially exposed to the greatest risk of loss. One
such group of individuals is participants and beneficiaries of plans whose
sponsor has filed for bankruptcy. The REACT project, which was begun in FY 2001, enables EBSA to
respond in an expedited manner to protect the rights and benefits of plan
participants when the plan sponsor faces severe financial hardship or
bankruptcy and the assets of the employee benefit plan are in jeopardy. Under
REACT, EBSA responds to employer bankruptcies by ensuring that all available
legal actions have been taken to preserve pension plan assets. In such
situations, it is common to find employers holding assets which belong to or
are owed to plans, occasionally intermingling those assets with the employers'
own assets. When a plan sponsor faces severe financial hardship, the assets of
any plans and the benefits of participants are placed at great risk. Due to the
tight time frames and the intricacies of the bankruptcy laws, plan assets and
employee benefits are often lost because of the plan fiduciaries' failure to
timely identify pension plan contributions that have not been paid to the
plan's trust.
Under REACT, when a company has declared
bankruptcy, EBSA takes immediate action to ascertain whether there are plan
contributions which have not been paid to the plans' trust, to advise all
affected plans of the bankruptcy filing, and to provide assistance in filing
proofs of claim to protect the plans, the participants, and the beneficiaries.
EBSA also attempts to identify the assets of the responsible fiduciaries and
evaluate whether a lawsuit should be filed against those fiduciaries to ensure
that the plans are made whole and the benefits secured.
ESOPs are designed to invest primarily in employer securities. Due to their unique nature, ESOPs can have distinct violations, as well as violations that might occur in any employee benefit plan. One of the most common violations found is the incorrect valuation of employer securities. This can occur when purchasing, selling, distributing, or otherwise valuing stock. Other issues involve the failure to provide participants with the specific benefits required or allowed under ESOPs, such as voting rights, ability to diversify their account balances at certain times, and the right to sell their shares of stock when received. EBSA will also review the refinancing of ESOP loans following EBSA's issuance of FAB 2002-1.
EBSA’s newest National Project will focus on the
receipt of improper, undisclosed compensation by pension consultants
and other investment advisers. EBSA’s investigations will seek to
determine whether the receipt of such compensation violates ERISA
because the adviser/consultant used its position with a benefit plan
to generate additional fees for itself or its affiliates. EBSA may
also need to investigate individual plans to address such potential
violations as failure to adhere to investment guidelines and improper
selection or monitoring of the consultant or adviser. The CAP will
also seek to identify potential criminal violations, such as kickbacks
or fraud.
The Office of Enforcement oversees the
administration of the Voluntary Fiduciary Correction Program (VFCP), a
voluntary compliance program intended to protect the financial security of
workers through the identification and correction of transactions that violate
Part 4 of Title I of ERISA. Applications to the VFCP should be mailed to the
appropriate EBSA office.
Information provided by plan participants and beneficiaries is an important source on which EBSA relies for developing investigations. Complaints are often the agency's first indications of problems with a pension or health and welfare plan. If you believe that there is a problem with your plan, we want to know about it. Please contact the EBSA office nearest you. You may also reach us by calling our toll-free number 1.866.444.3272 or by submitting your complaint electronically at askebsa.dol.gov.
If you are complaining about being denied a benefit from an employee benefit plan, you should make an application through your plan’s normal claims procedures before contacting us. When you contact us, a Benefits Advisor will attempt to answer your questions and resolve your complaint with the plan administrator informally. If your application has been denied, we will intervene on your behalf where there is reason to believe you are entitled to benefits. Such intervention will be informal and generally will not include litigation on behalf of any individual.
If your complaint involves a plan-wide violation of ERISA and the Benefits Advisor is unable to resolve the matter informally, a formal investigation may be opened. In these circumstances, it is our policy to contact the complainant on a quarterly basis to advise that the complaint is being addressed. In order to maintain the independence and integrity of the investigative process, EBSA does not discuss the status of an on-going investigation with a complainant.
Annual Returns/Reports of Employee Benefit Plans (Form 5500 Returns) provide financial and operational information. They should be provided by plan administrators, and help participants and beneficiaries police their plans. If you have any problem obtaining copies of your plan’s Annual Return or other plan documents, please contact the ERISA Public Disclosure Room. If you believe that your plan did not file an Annual Return (or that the information provided on your Annual Return is not accurate), please contact EBSA's Office of the Chief Accountant at 202.219.8360. If you have any technical questions concerning ERISA, call 1.866.444.3272 or submit your inquiry electronically at askebsa.dol.gov.
ERISA contains several provisions which were
enacted in recognition of the need to establish an effective mechanism to
protect the interests of plan participants and beneficiaries, as well as to
establish an effective mechanism to detect and deter abusive practices. These
provisions include the annual reporting of financial information and activities
of employee benefit plans. This is accomplished through the filing of a Form
5500 Series Annual Report. The Secretary of Labor is principally responsible
for enforcing ERISA's fiduciary provisions and the annual reporting and
disclosure provisions of ERISA.
Office of the Chief Accountant reviews Form 5500
Annual Reports to ensure that the information contained therein is complete and
accurate. Where deficient, the Form 5500 Annual Report may be rejected,
potentially subjecting the plan administrator to civil penalties not to exceed
$1000 per day.
The Non-Filer Enforcement Program began in late
1993 as an effort to proactively target employee benefit plans who are required
to file annual reports, but have not. Non-Filers are generally companies and
corporations, large and small, that have illegally elected not to file annual
reports for various reasons. The failure to file annual reports could be a
signal that participants' benefits are jeopardy.
The program seeks both retroactive (back to 1988)
and prospective compliance. Employee benefit plans targeted through the
Non-Filer Enforcement Program or referred to the program either through a
department investigation or through a referral from the Internal Revenue
Service or Pension Benefit Guaranty Corporation are not eligible to participate
in other Department of Labor voluntary or reduced penalty programs.
Plan participants and beneficiaries are
encouraged to notify the department if they are unable to obtain or locate the
annual reports for their employee benefit plans.
When notifying the department of a potential
violation you should try to provide the following information:
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Name and Address of the
Company
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E.I.N. (Employer Identification
Number)
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Plan Name
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Plan Number (three digit number
either 001 for pension plans or 501 for welfare plans)
Please send the above information to the following
address:
U.S. Department of Labor
Employee
Benefits Security Administration
Office of the Chief Accountant
200
Constitution Avenue, NW, Suite N-5510
Washington, DC 20210
Attention:
Non-Filer Program
The department has the authority to investigate
both civil and criminal violations.
Penalties for the failure to file annual reports
have been established to reflect the egregious nature of the violation. The
Non-Filer penalty for failure to file annual reports is assessed at a rate of
$300 per day up to a maximum of $30,000 per annum for each plan year filing.
The assessment is cumulative: for example, if you failed to file the 1990
annual report for 5 years the penalty for that one filing could be as much as
$150,000. Plan administrators are encouraged to take corrective
action through voluntary compliance.
For those plan administrators who do not take
advantage of the reduced civil penalties offered by the Delinquent Filer
Voluntary Compliance Program (DFVC), the department notifies plan
administrators of its intent to assess the full penalty for failure to file
timely annual reports for the plan years after 1987. Pursuant to ERISA Section
502(c)(2), these plan administrators may be assessed $50 per day for each day
an annual report is filed after its required due date, without regard to any
extensions to filing.
These plan administrators, identified as the
result of the department's ongoing investigative efforts are required to submit
a Statement of Reasonable Cause to explain the facts for failure to file a
timely annual report. Upon review of the Statement of Reasonable Cause, the
department determines whether to assess the plan administrator the full
late-filer penalty or to provide them a partial or full abatement.
This program only targets those plan
administrators with delinquent filings who fail to avail themselves of the DFVC
Program.
An integral component of the annual reporting and
disclosure provisions under Title I of ERISA is the requirement for plans with
more than 100 participants, which hold assets in trust, to obtain an annual
financial audit by an independent qualified public accountant (IQPA).
Audited financial statements and the IQPA's
report on the fairness and consistency of their presentation must be filed with
the Form 5500. The audit requirement is intended to ensure the integrity of the
financial information incorporated in the annual reports. Section 103 of ERISA
specifically requires that these audits be conducted pursuant to the standards
established by the accounting and auditing profession in the pronouncements
which define generally accepted accounting principles (GAAP) and generally
accepted auditing standards (GAAS).
While ERISA's auditing provisions have worked to
provide the DOL and the plan participants and beneficiaries with information
about plan operations, experience has shown that IQPA audits do not
consistently meet professional standards. In addressing this concern, Office of
the Chief Accountant has established an on-going quality review program for
employee benefit plan audits. This program involves a random selection of plan
audits that are reviewed to ensure that the level and quality of audit work
performed supports the opinion rendered by the IQPA on the plan's financial
statements and that such work is adequately documented in the IQPA's work
papers as required by established professional standards. |
