412 644-5754
In the Matter of
U.S. DEPARTMENT OF LABOR,
PENSION & WELFARE BENEFITS
ADMINISTRATION,
Claimant,
v.
BRICKLAYERS & ALLIED
CRAFTSMEN, LOCAL 7, PENSION
PLAN,
Respondent.
DATE ISSUED: April 28, 1995
CASE NO.: 94-RIS-54
Appearances:
Glenn M. Loos, Esquire
For Complainant
William B. Gore, Esquire
For Respondent
BEFORE: GERALD M. TIERNEY
Administrative Law Judge
DECISION AND ORDER
This case arises under §502(c)(2), 29 U.S.C.
§1132(c)(2), of the Employee Retirement Income Security Act
of 1974 ("ERISA"), as amended, 29 U.S.C. §§1001, et
seq., and the Regulations issued thereunder.[1]
Background
The Pension and Welfare Benefits Administration
("Complainant"), through its Office of Chief Accountant, Division
of Accounting Services, and its Division of Reporting Compliance,
assessed a penalty of $2,500 on Bricklayers & Allied Craftsmen,
[PAGE 2]
Local 7, Pension Plan ("Respondent") as plan administrator of its
Pension Plan ("Plan") for reporting deficiencies in connection
with the 1990 annual report required under ERISA to be filed for
-2-
the Plan by the Plan Administrator. Respondent filed an answer
and request for an administrative hearing pursuant to 29 C.F.R.
§§ 2560.502c-2 and 2570.62, and a formal hearing was
held on December 6, 1994, in Akron, Ohio. At the close of the
hearing, the record was left open until January 20, 1995 for the
submission of closing briefs.[2]
Issues
1. Whether the scope limitation presented in the audit report of
the Independent Qualified Public Accountant ("IQPA") that
Respondent filed with its 1990 annual report constitutes a
material qualification pursuant to ERISA Section 104(a)(4).
2. Whether the $2,500 civil penalty assessed by Complainant
against the Respondent is arbitrary, capricious, or an abuse of
discretion.
FINDINGS OF FACT
The following facts were largely undisputed: (1) The
Respondent was a multi-employer pension benefit plan with 502
participants and beneficiaries during the 1990 plan year. (CX-
1). (2) The effective date of the Plan was June 12, 1968. (CX-
1). (3) In essence, the Plan, pursuant to a collective
bargaining contract, collected contributions from the various
companies who employed union members, and the Plan used the funds
for pension benefits for qualifying members. (TR 33).
(4) Respondent Plan was an employee benefit plan covered by ERISA
§ 4(a), 29 U.S.C. § 1003(a). (5) Due to its size (over
100 participants) the Plan was required to file the full Form
5500 annual report. (6) The Respondent was the Plan
Administrator of the Plan within the meaning of ERISA §
3(16), 29 U.S.C. § 1002(16). The Respondent, therefore, was
responsible for filing an acceptable annual report for the Plan
as required by ERISA §§ 101(b)(4) and 104(a)(1), 29
U.S.C. §§ 1021(b)(4) and 1024(a)(1), which included an
unqualified annual audit report or opinion by an IQPA as required
by ERISA §§ 103(a)(3)(A) and 104(a)(4), 29 U.S.C.
§§ 1023(a)(3)(A) and 1024(a)(4).
On November 30, 1991, Respondent filed its 1990 Form 5500
[PAGE 3]
annual report which included a report by an IQPA (Sorin & Sorin,
Inc.) as required by Department of Labor ("DOL") regulation 29
C.F.R. § 2520.103-1(b). Specifically, the Independent Audit
-3-
Report read as follows:
Except as explained in the following paragraph, we
conducted our audit in accordance with generally
accepted auditing standards.
Paragraph #3 of the report went on to state:
The internal control procedures adopted by the Plan are
not adequate to assure the completeness of employer
contributions to the Plan and the Plan's records do
not permit the application of adequate alternative
procedures regarding employer contributions.
The report concluded:
In our opinion, except for the effects of such
adjustments, if any, as might have been determined
to be necessary had we been able to determine the
completeness of employer contributions, the financial
statements referred to above present fairly, in all
material respects, information regarding the Plan's
net assets...
(CX-1).
On July 9, 1993, Complainant issued a Notice of Rejection
("NOR") claiming that Respondent's 1990 Form 5500 was deficient
in that the IQPA's report contained a scope limitation (IQPA
could not adequately test employer contributions) other than that
permitted under DOL regulations and, therefore, the scope of the
IQPA's audit was inappropriately limited. Accordingly, the
report of the IQPA contained an unacceptable "material
qualification" as that term was used in ERISA Section 104(a)(4).
In addition, the NOR required that a corrected annual report Form
5500 be filed by Respondent within 45 days.[3] (CX-2).
By letter dated August 20, 1993, Respondent informed
Complainant they needed additional time outside the 45-day period
to complete the process of correcting their annual report.
Respondent also advised Complainant that annual reports
containing the same qualification issued by the IQPA had been
filed prior to 1990 with the Complainant and had not been
[PAGE 4]
rejected. (CX-3, See RX A-P).
Complainant issued a Notice of Intent to Assess a Penalty on
-4-
October 8, 1993 and proposed a $50,000 penalty[4] against
Respondent for the 1990 annual reporting deficiencies cited in
the NOR. Respondent was given 30 days to file a written
statement of reasonable cause for failure to file a complete
annual report and why the penalty, as calculated, should not be
assessed. (CX-4).
Respondent filed a Statement of Reasonable Cause dated
November 3, 1993. In general the statement contained 2 items.
First, it supplied a modified and unqualified report of an IQPA.
Because this new audit, performed according to generally accepted
auditing standards, included a review of employer records
concerning the hours worked by union members, the IQPA was
satisfied that employer contributions were complete and an
unqualified opinion was rendered. (CX-5).
Second, Respondent's Statement of Reasonable Cause stated
several reasons why the entire $50,000 should not be assessed.
For one, Respondent noted the NOR was sent to the wrong address
which caused a substantial delay (2-3 weeks). For another, all
prior Form 5500s filed by the Plan had the same IQPA
qualification. (RX A-P). Also, Respondent stated that the
administrative procedure for authorizing and obtaining a new IQPA
opinion took longer than the time allowed. Finally, they did not
agree with the opinion of the IQPA and felt that the
qualification was not material in any event. (CX-5).
After reviewing Respondent's Statement of Reasonable Cause,
Complainant then issued a Notice of Determination on March 25,
1994 which abated 95%, or $47,500, of the proposed penalty.[5]
Complainant determined that there was no reasonable cause to
-5-
waive the remaining $2,500 (5%) of the penalty because: (1) The
noted deficiency was not corrected in the response to the NOR.
(2) The conclusion reached that the noted qualification was
acceptable, as the Form 5500 filings for the past several years
had not been rejected, did not represent reasonable cause for
failure to submit an acceptable IQPA report. (CX-6).
Testimony of Michael Auerbach[PAGE 5]
Complainant's witness, Michael Auerbach, had been employed
by the Pension and Welfare Benefits Administration for the last 6
years. He was Chief of the Division of Accounting Services. (TR
22). In addition, he was a Certified Public Accountant and had a
total of 20 years of experience in the field. (TR 23). His job
was to review annual report filings that were submitted by
employee benefit plans. In particular, he focused on reports
submitted by IQPAs. He also worked with the American Institute
of Certified Public Accountants and the Financial Accounting
Standards Board which were standard setting bodies for the
accounting and auditing profession. (TR 23).
At the hearing, Mr. Auerbach explained, as background, that
plans with 100 or more participants were required by law (ERISA)
to annually file Form 5500 along with an audit report of an IQPA.
(TR 24). In all cases, plan administrators were responsible for
the filing of this report. (TR 25). Once filed, all Form 5500s
were used by the Department of Labor, the Internal Revenue
Service ("IRS"), and the Pension Benefit Guarantee Corporation.
(TR 24). The IRS processed the filing by encoding all the data
into an electronic data base. A series of 140-150 computerized
edit checks were run to assure accuracy and completeness. If any
inconsistencies were found, a letter would be sent out to the
plan asking for a revision. (TR 43). Because it was not
possible to individually look at the roughly 100,000 Form 5500s
that were filed each year, Mr. Auerbach and his staff surveyed
the IRS data base and selectively targeted filings for further
review. (TR 26). Once a file was selected, they would get a
hard copy of the filing from the IRS. If deficiencies were
found, a NOR would be generated and sent by certified mail to the
plan administrator listed on the Form 5500. (TR 26-28).
In the instant case, Mr. Auerbach determined that the IQPA
report attached to the Respondent's 1990 annual report contained
a scope limitation which constituted a material qualification in
violation of ERISA.[6] (TR 32). According to Mr. Auerbach, the
qualification in paragraph #3 of the Independent Auditor's report
-6-
(see above) was significant because it called into question
whether the Plan knew how much money it actually was supposed to
receive.[7] (TR 34). This scope limitation was deemed a
material qualification[8] because according to professional
auditing standards[9] , an auditor must have "free reign" and
sufficient information in order to make a determination. (TR
35).
[PAGE 6]
Rejection of the annual report was based on the scope
qualification.[10] (TR 36).
Forty-five days after the date of the NOR, the Plan was
still not in compliance.[11] (TR 37). Complainant then
assessed a penalty of $50,000. (TR 37).
After consideration of Respondent's Statement of Reasonable
Cause, it was determined that some reasonable cause existed and
95% of the penalty was abated.[12] (TR 37). The penalty was
not abated 100% because Respondent had not corrected the penalty
within 45 days.[13] In addition, they had moved into the
"penalty phase" before the correction was finally achieved. (TR
40). Mr. Auerbach added that if the Department abated every
penalty 100%
-7-
it would detract from the deterrent effect of trying to get
filers to come into compliance. (TR 41).
Testimony of Carol Rogers
Respondent witness, Carol Rogers, was presently employed by
Western Reserve Care System. Previously she had worked for First
Benefits Agency for 9 years then the RBL Agency from 2/93 to
5/94. Both of these agencies were third-party administrators for
health and welfare and pension funds. In addition, they provided
administrative and consulting functions to Respondent. (TR 70-
71). Ms. Rogers prepared the 1990 Form 5500 for Respondent while
employed by First Benefits Agency. (TR 72).
Respondent did not receive Complainant's NOR until 2-3 weeks
after the date indicated on the letter. (TR 85). Apparently the
NOR had been sent to the First Benefits Agency, the previous
administrator listed on the 1990 return (RBL was the new
administrator). (TR 84). As soon as RBL Agency received the
notice, Ms. Rogers contacted Barb Briley of the Department of
Labor. (TR 85). She told Ms. Briley that in the past they had
not been notified that the IQPA opinion would be unacceptable and
that the Plan was concerned over the 45 day requirement because
of the tardiness of receipt of the NOR and the amount of
information that was involved. (TR 83). Ms. Briley recommended
they file a Notice of Reasonable Cause. Ms. Rogers assisted in
the preparation of that notice. (TR 85).
The Plan had 6 trustees: 3 labor and 3 management. These
trustees were not compensated. Any penalty assessed could not be
[PAGE 7]
taken out of the assets of the Plan but must be paid by the
trustees themselves. The trustees did not engage in any
wrongdoing. They cooperated fully in rectifying the report. (TR
86-87).
On cross-examination, Ms. Rogers stated they were never
notified that the filings from 1983-1992 were acceptable filings.
(TR 88). There was a 3 week delay between July 9th, the date of
the NOR, and when she actually received it. (TR 88). The
corrected annual report was not filed until 3 months after
receiving the NOR. (TR 89).
Testimony of Richard Linn
Respondent witness, Richard Linn, was currently President of
RBL Agency, a third-party administrative firm. (TR 91-92). He
formed RBL in January 1993. Prior to that he was Vice President
of First Benefits Agency. He had been administrative manager of
the Respondent Plan since 1984. (TR 92).
Mr. Linn testified that in 1990 the Plan had in place a
collection procedure in conformance with Department of Labor
-8-
regulations concerning the adoption of a collection procedure.
In 1990 there were 4 delinquent contractors. Suit was filed in
district court for collection of these contributions to the Plan.
(TR 96). Other than those, all other contributions in 1990 to
the Plan were accurate and complete. (TR 97).
On cross-examination, Mr. Linn was questioned about what
procedures they had in place to assure that the amount of
contributions from each employer was correct. (TR 102). Mr.
Linn stated the biggest policing factor was contributions to the
vacation fund. (TR 103). The amount in the vacation fund
corresponded with the amount being contributed by each employer
to the pension fund. (TR 105). He agreed that the sole
procedure for insuring that the amount of contribution from each
employer was correct was a verification by their client
participants. (TR 104). The IQPA did not think those procedures
were adequate. (TR 104).
Testimony of Donald Zucker
Respondent witness, Donald Zucker, had been a Certified
Public Accountant since 1986. He had a Masters Degree in
Business Administration and was a Certified Financial Planner.
[PAGE 8]
(TR 106). In addition, he was President of Sorin, Zucker, and
Warfield the successor firm to Sorin & Sorin (the firm who
conducted the 1990 audit for Respondent). (TR 107).
Mr. Zucker's review of records going back to 1985 reflected
his firm had been consistent in the qualification concerning
Respondent's internal procedures for the completeness of employer
contributions since that time. (TR 110).
His firm used AICPA's Audit and Accounting Guide when
auditing employee benefit plans. (TR 111). This manual provided
guidance on how to perform an audit of an employee benefit plan.
(TR 111). He was aware there were references in ERISA to
"generally accepted accounting standards." Mr. Zucker was
unaware whether there was any incorporation by reference of the
above-mentioned guidelines. (TR 112).
The records kept by the Fund were a good start but because
Mr. Zucker could not audit the records of the employers, it was
not sufficient for him to issue an unqualified opinion. (TR
114). He could not determine whether the problem was material
until additional procedures were actually performed. (TR 115).
Additional procedures were approved by Respondent's Board of
Trustees in 1993. Mr. Zucker then randomly tested employer
contributions to determine if there were any material changes to
-9-
the employer contributions. (TR 120). With the removal of the
scope limitation, the application of necessary procedures, and
the positive results of those procedures Mr. Zucker was able to
modify his opinion and issue an unqualified opinion. (TR 122).
It took him 32 days to complete the additional audit. (TR 121).
Mr. Zucker was unaware of any announcement by the Department
of Labor concerning the rejection of annual reports because the
auditor issued a qualified opinion as to the completeness of
contributions. (TR 126, 127). It was his understanding that
penalties were abated 100% if someone in the government
misinformed the administrator or death. (TR 128).
CONCLUSIONS OF LAW
Complainant argues the documentary and testimonial evidence
[PAGE 9]
present in the record demonstrates Respondent failed to comply
with the reporting and disclosure requirements of ERISA and its
implementing regulations. In particular, the Respondent
submitted a deficient annual report because the required audit
report and opinion by an IQPA contained a material qualification.
The audit was not performed entirely in accordance with generally
accepted standards because the Respondent did not have in place a
system for ensuring that employer contributions to the Plan were
correct. Moreover, the Respondent failed to show reasonable
cause why the civil penalty assessed by the Secretary should be
totally abated. Therefore, the $2,500.00 penalty assessed by the
Secretary should be upheld. (See Complainant's Post-
Hearing Brief, pg 24-25).
It is Respondent's position that the limitation presented in
the audit report of the IQPA for the 1990 annual report does not
contain a material qualification pursuant to ERISA Section
104(a)(4). Secondly, the Respondent contends the Complainant
abused its discretion and acted arbitrarily and capriciously when
it failed to abate entirely the $50,000 penalty after Respondent
filed a modified report of the IQPA to the 1990 annual report and
presented unrefuted statements of reasonable cause as to why the
penalty should be abated. (See Respondent Post-Hearing
Brief, pg 7).
Material Qualification
The first issue is whether the scope limitation presented in
the audit report of the IQPA that Respondent filed with its 1990
annual report constitutes a material qualification pursuant to
ERISA Section 104(a)(4).
Complainant argues the IQPA, during the initial audit, could
not test employer contributions, therefore, could not perform an
audit in accordance with generally accepted auditing standards.
Instead the IQPA rendered a qualified audit opinion which
-10-
violated the requirements of ERISA Sections 103, 104.
Complainant deemed this scope limitation to be a material
qualification of the audit report.[14] (See Complainant
Post-Hearing Brief, pg 19-21).
On the other hand, Respondent's argument is two-fold. First
they maintain that their 1990 annual report was complete. In his
report the IQPA indicated the internal control procedures adopted
by Respondent were not adequate to assure completeness of
employer contributions to the Plan. However, Respondent submits
[PAGE 10]
that generally accepted auditing standards ("GAAS") are
inconsistent with ERISA Section 103 since these standards call
for a determination which is not based upon the Plan's books
and records but upon an external examination of
records. Respondent maintains that the books and records of the
Plan contained sufficient information to assure the completeness
of employer contributions. Further, they argue Complainant
failed to go beyond the statements of the IQPA to consider
whether or not the internal procedures claimed by Respondent
truly were sufficient to assure completeness of employer
contributions.
Second, Respondent argues the IQPA did not express in his
report that a "material qualification" existed as a result of his
inability to externally test the completeness of employer
contributions. They point out that Mr. Auerbach could not
testify that an audit not in conformity with generally accepted
accounting standards constitutes a material qualification.
(See Respondent's Post-Hearing Brief, pg 9-12).
I find Complainant's argument to be more convincing and
consistent with the plain meaning of the statute (ERISA Sections
103, 104). ERISA Section 103, 29 U.S.C. 1023(a)(3)(A), provides:
The administrator of an employee benefit plan shall
engage, on behalf of all plan participants, an
independent qualified public accountant, who shall
conduct such an examination of any financial statements
of the plan, and of other books and records of the plan,
as the accountant may deem necessary
...Such examination
shall be conducted inaccordance with
generally acceptedauditing
standards, and shall involve such tests of thebooks and recordsof the plan as are considered
necessary bythe independentqualified public
accountant. (emphasis added).
In this case, I find that the IQPA conducted the audit of
-11-
Respondent's 1990 annual report in accordance with GAAS. (See
CX-1). During the audit the IQPA found it necessary to test
employer contributions to the Plan. However, the Plan did not
have the information necessary to determine whether employer
contributions were correct. It was this lack of information that
prevented the IQPA from performing an audit in accordance with
GAAS and that caused the qualification in his report.
[PAGE 11]
Respondent's argument that the generally accepted auditing
standards are inconsistent with ERISA Section 103 is not
persuasive. The plain language of Section 103 mandates that an
IQPA conduct an examination in accordance with GAAS. Also, he is
given discretion to perform whatever tests of the Plan's books
and records he deems necessary. According to 29 U.S.C.
§ 1027, the Plan:
Shall maintain records on the matters of which
disclosure is required which will provide in
sufficient detail the necessary basic information
and data from which the documents thus required may
be verified, explained, or clarified, and checked for
accuracy and completeness... (emphasis added).
Auditing standards require the IQPA to test employer
contributions to the Plan. The point here is that the
Plan should have been keeping the necessary records. The
fact that the IQPA had to get the needed information externally
from the participant employers only shows that the Plan was not
keeping proper records pursuant to 29 U.S.C. §1027.
Also, Respondent's argument that their books and records
contained sufficient information to assure the completeness of
employer contributions is not convincing. While these records
may ensure that the employer pays the entire amount of
contributions the employer claims to owe,
they did not ensure that the employer is claiming to owe the
correct amount.
Finally, I reject Respondent's argument that since the IQPA
did not specifically express in his report that a "material"
qualification existed as a result of his inability to externally
test the completeness of employer's contributions, Complainant
should not consider this qualification to be material.
29 U.S.C. 1024(a)(4) provides that the Secretary may
reject any filing under this section:
(A) if he determines that such filing is incomplete for
purposes of this part; or
-12-
(B) if he determines that there is any
material[PAGE 12]
qualification by an accountant or actuary contained
inan opinion submitted pursuant to Section
1023(a)(3)(A) or Section 1023(a)(4)(B) of this
title. (Emphasis added).
According to the plain meaning of the statute, it is up to the
Complainant to determine whether there has been a material
qualification in the IQPA's report. In this case, Complainant
reasonably concluded that the scope limitation was "material" in
that the qualification precluded the IQPA from issuing an audit
that complied with the GAAS required by ERISA Section 103.
Therefore, I conclude that the scope limitation presented in
the audit report of the IQPA that Respondent filed with its 1990
annual report constitutes a material qualification pursuant to
ERISA Section 104(a)(4).
Penalty
The final issue is whether the $2,500 civil penalty assessed
by Complainant against the Respondent is arbitrary, capricious,
or an abuse of discretion.
Complainant maintains that according to ERISA Section
502(c)(2), the amount of money assessed shall be determined by
the Department of Labor taking into consideration the degree of
willfulness of the failure to file an annual report. For one,
Complainant argues Respondent has a duty to be familiar with the
requirements of the Act. Further it took Respondent 4
months from the date of the NOR to come into compliance, well
past the 45 day period prescribed by ERISA Section 104(a)(5).
Nevertheless, Complainant substantially reduced, by 95%, the
civil penalty based on Respondent's good faith, efforts to
correct the deficiencies, time necessary to make corrections, and
eventual compliance. Complainant cites 2 reasons for not totally
abating the penalty: 1) integrity of ERISA enforcement 2)
Respondent's reliance on prior incorrect filings is not
sufficient for total abatement since Complainant never approved
those prior filings. (See Complainant's Post-Hearing
Brief, pg 21-24).
On the other hand, Respondent's argument is two-fold.
First, Respondent argues that the initial assessment of $50,000
was improper pursuant to Section 104(a)(5) of ERISA. After the
NOR is sent and the plan fails to resubmit a satisfactory Form
5500 within 45 days AND the Secretary deems it is in the best
interest of the participants, he can use the remedies provided by
[PAGE 13]
statute. In this case, Respondent maintains no participant in
the Plan was injured by: (1) the Form 5500 with the qualified
opinion of the IQPA, (2) reasonable delay required to implement
employer on-site review of contributions, and (3) existing
-13-
procedures to check accuracy of employer contributions. Also,
the actual penalty assessed should be limited based on the plan's
degree of willfullness or culpability. 29 C.F.R.
§2560.502c-
2(b)(1). Therefore, Respondent concludes Complainant's
assessment under Section 502 without regard to either factors
(i.e. best interest of participants and degree of willingness or
culpability) is a violation of the statute and the penalty must
be invalidated.
Second, Respondent argues they showed reasonable cause
necessary to support a complete abatement of the assessed
penalty. They assert Complainant acted unreasonably in its
refusal to grant 100% abatement of the penalty because Respondent
was unable to correct the qualification in the annual report
within the initial 45 days. Further, the Act provides that a
penalty may be waived upon a showing that the Plan acted
reasonably and in good faith. 29 C.F.R. 2560.502 c-2(d).
Respondent maintains: they sent a corrected address to the IRS;
the Plan notified Complainant within the 45 day period that they
were taking steps to achieve compliance and asked for a 60 day
extension; further, the inability to perform the checks on the
employee contributions within 45 days was beyond the Trustees'
control.
Also, Respondent argues they relied on the fact they filed a
"qualified opinion" for at least 10 years without notice it was
improper. Testimony showed: the survey of Form 5500 was not
random; Complainant had the ability to determine Respondent had
submitted a qualified opinion 2 years prior; finally, Complainant
did not provide any means for the trustees to determine that the
qualified opinion of the IQPA was going to render the annual
report invalid. (See Respondent's Post-Hearing Brief, pg
15-23).
Again, I find Complainant's argument to be more convincing
and consistent with ERISA Section 502(c)(2). According to 29
C.F.R. §2560.502c-2(b)(1):
The amount assessed under Section 502(c)(2) shall
be determined by the Department of Labor, taking into
consideration the degree or willfulness of the
failure
to file the annual report. However, the amount
assessed...shall not exceed ,000 a day... (emphasis added)
[PAGE 14]
I find Complainant stated substantial reasons for the
assessment of the $50,000 penalty against Respondent(i.e.
Respondent's duty to be familiar with requirements of the Act and
the fact that it took them 4 months after the date of the NOR to
come into compliance). In addition, Mr. Auerbach testified that
no willful conduct on the part of the Respondent was being
alleged. (TR 40). However, the fact that only $150 per day (out
of a maximum of ,000 per day) was assessed reflects
Complainant's consideration of the degree of Respondent's
failure
-14-
to file the annual report.
Therefore, I find Complainant's original assessment of the
$50,000 penalty against Respondent was reasonable and supported
by the substantial weight of the evidence.
Further, according to 29 C.F.R. §2560.502 c-2(d):
The Department may waive all or part of the penalty
to be assessed under Section 502(c)(2) on a showing
by the administrator that there was reasonable cause
for the failure to the annual report. (emphasis added)
Again, according to the plain language of the regulations,
the Complainant may waive all or part of the penalty upon
a showing of reasonable cause from the administrator. Therefore,
even with a showing of reasonable cause, it is up to the
discretion of the Department whether or not to abate the entire
penalty. In this case, based on Respondent's showing of
reasonable cause, Complainant reduced the penalty by 95%. I find
Complainant's decision to uphold the remaining 5% of the penalty,
in part to maintain the integrity of ERISA enforcement, is
reasonable and not an abuse of discretion.
Finally, Respondent's argument that they relied on annual
reports filed with a "qualified opinion" for the past 10 years
without notice they were improper, is without merit. Like an
income tax form, the annual report 5500 is to be filed in
accordance with the relevant regulations. Just because an annual
report is not chosen for review does not mean that it has been
"accepted" by the Complainant. Mr. Auerbach testified that
annual reports were selectively chosen for review. However, he
made no representation that out of the more than 100,000 Form
5500s filed each year, that every file with a mistake
would be caught and individually reviewed.
[PAGE 15]
In conclusion, I find that Complainant's assessment of
$2,500 against the Respondent was reasonable and was not an abuse
of discretion.
-15-
ORDER
1. Respondent, Bricklayers & Allied Craftsmen, Local 7, Pension
Plan, is ORDERED to pay to the United States Department of
Labor a civil penalty in the total amount of $2,500 within
thirty (30) days from the date of service of this Decision and
Order for its violations of ERISA, as set forth hereinabove.
2. Any portion of this penalty amount that is not paid by that
date shall be subject to such penalties and interest as ERISA
and its implementing regulations have provided.
______________________________
GERALD M. TIERNEY
Administrative Law Judge
GMT/lw/ir
Pittsburgh, Pennsylvania
SERVICE SHEET
Case Name: BRICKLAYERS & ALLIED CRAFTSMEN, LOCAL #7,
PENSION PLAN
Case No.: 94-RIS-54
[PAGE 16]
Title of Document: DECISION AND ORDER
I hereby certify that on April 28, 1995, a copy of the
above-entitled document was mailed to the following parties:
______________________________
Irene K. Rothert
Legal Technician
REGULAR MAILREGULAR
MAIL
G. William Scott Division of Reporting
Glenn M. Loos, Esq. Compliance
Plan Benefits Security Division Office of the Chief Accountant
Office of the Solicitor U. S. Department of Labor
U. S. Department of Labor 200 Constitution Ave., NW
P.O. Box 1914 Room N-5638
Washington, DC 20013 Washington, DC 20210
William B. Gore, Esq. Plan Administrator
Laybourne, Smith, Gore & Bricklayers & Allied
Goldsmith Craftsmen Local No. 7
159 South Main St., Suite 503 5399 Lauby Road, Suite 115
Akron, OH 44308-1378 North Canton, OH 44720
Associate Solicitor Ms. Barbara Briley
Plan Benefits Security Division Div. of Accounting Services
ERISA Office of the Chief Accountant
P.O. Box 1914 U. S. Department of Labor
Washington, DC 20013 200 Constitution Ave., NW
Room N-5437-D
Benjamin T. Chinni Washington, DC 20210
Assoc. Regional Solicitor
U. S. Department of Labor
881 Federal Office Bldg.
1240 East Ninth Street
Cleveland, OH 44199
[ENDNOTES]
[1] The following abbreviations will be used as citations to the
record: CX = Complainant's Exhibits; RX = Respondent's Exhibits;
TR = Transcript of the Hearing.
[2] At the hearing, Complainant's Exhibits (CX) 1-6 and
Respondent's Exhibits (RX) A-R were admitted into evidence.
(See TR 5,6,131).
[3] The Notice of Rejection was sent by certified mail to the
Respondent on July 9, 1993. The return receipt slip was signed
by Julie Anders on July 12, 1993. (CX-2).
[4] Complainant has had authority under ERISA Section 502(c)(2)
since 1987 (beginning with plan year 1988) to assess civil
penalties for missing or deficient annual reports or for late
filing. Complainant had the authority to assess up to ,000 per
day for deficiencies. In this case, Respondent was assessed $150
per day x 678 days (number of days after the due date of the
annual report) = $101,700 (a maximum of $50,000). (CX-4).
[5] The Complainant determined that a large portion of the
proposed penalty should be waived because: (1) The response
indicated that consultation was in progress between Fund council,
the Trustees, and the IQPA to discuss the adoption and
implementation of a payroll audit program satisfactory to the
IQPA to assure completeness of employer contributions. (2) The
responses to the NOR and the Notice of Intent were submitted in a
timely manner. (3) The report of the IQPA was now acceptable.
(CX-6).
[6] A "scope limitation" meant something impaired the auditor's
ability to get information. In this case, the "something" was
that the information did not exist. (TR 35).
[7] The plan administrator had a fiduciary responsibility to
make sure the Plan had procedures or programs in place to assure
themselves that the right amount of money was being contributed.
(TR 34). Auditors in this case indicated they did not believe
Respondent had sufficient procedures in place. (TR 35).
[8] There was no Section in ERISA that specifically defined
"material qualification." (TR 40).
[9] ERISA Section 103 requires an audit be performed in
accordance with "generally accepted auditing standards." (TR
35).
[10] Mr. Auerbach noted that there was only one limited scope
audit exemption in ERISA, 29 C.F.R. 2520.103-8, however it
clearly did not apply to this case. (TR 36, See CX-2).
[11] Respondent had requested an extension, however, Complainant
had no authority to extend the statutory 45 day period with which
Respondent had to bring the annual report into compliance. (TR
47).
[12] Respondent filed their Statement of Reasonable Cause, which
included the corrected filing, on November 3, 1993, approximately
4 months after the date of the Notice of Rejection (July
9, 1993). (TR 39-40).
[13] Mr. Auerbach noted that no willful conduct on behalf of
Respondent was alleged. (TR 40).
[14] Complainant contends that its findings should be reviewed
under the substantial evidence standard. (Complainant's Post-
Hearing Brief, pg 18).
