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1. Purpose. In order to implement
the EBSA policy of promoting voluntary compliance with ERISA,
the following program guidelines have been prepared for use by
the EBSA field offices. It is expected that field staff will
actively seek to achieve voluntary resolution of all
violations of ERISA within the parameters established in these
guidelines.
More specifically, the purpose of the
voluntary compliance guidelines is to provide guidance to EBSA
field offices as to situations (1) which are appropriate for
attempts at voluntary compliance and (2) where they are
authorized to proceed without prior consultation with OE/DFO.
The guidelines also detail a procedure for securing OE/DFO
approval for voluntary compliance attempts. In addition, the
guidelines provide instructions as to acceptable terms of
settlement in cases where voluntary compliance is sought.
2. Review of Guidelines. Although
attempting to be comprehensive, these guidelines will not make
clear in every situation whether voluntary compliance efforts
are appropriate. Therefore, the field is encouraged to consult
with OE/DFO on an as-needed basis. Moreover, these
guidelines represent the current view of appropriate
circumstances for voluntary compliance. OE will periodically
review suggestions from the field to determine whether these
guidelines should be amended in light of the field's
experience.
3. Delegation of Authority to the Field.
Listed below are the delegations of authority to the field
regarding voluntary compliance.
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RDs have the authority to permit
Investigators/Auditors to discuss their findings with plan
officials during an investigation, provided that the
officials are advised that the matters discussed (1)
represent only the views of the Investigator/Auditor; (2)
are subject to review by higher authority; and (3) will be
confirmed in writing by EBSA. While it will be useful to
discuss with plan officials their position and intentions
regarding actions they might take voluntarily to correct
violations, RO personnel, other than the RD, generally should
not propose corrective actions or discuss tentative
settlement terms.
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After consultation with the RD,
Investigators/Auditors may discuss with plan officials
proposed corrective actions and the civil penalty process at
the conclusion of the investigation. The
Investigator/Auditor, however, may not discuss specific
dollar amounts related to the proposed corrective action or
any civil penalty that might be assessed as a result
thereof. All discussions with plan officials which relate to
findings or proposed corrections must be memoralized in
writing by the Investigator/Auditor as soon after the
discussion as possible. The memorandum should be included in
the case file.
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RDs have the authority to issue all VC
notice letters and to close cases if they meet the
guidelines in this chapter.
4. Types of Cases which are Appropriate
for Voluntary Compliance. Subject to the restrictions set
forth in paragraph 5 of this chapter, most issues may be
suitable for voluntary compliance. Moreover, benefit disputes,
bonding, reporting, and disclosure issues are almost always
appropriately handled by voluntary compliance.
5. Types of Cases Which Are Not
Appropriate for Voluntary Compliance. For enforcement
policy purposes, certain types of cases are not suitable for
voluntary compliance. These include the following:
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Cases in which the time for proposed
correction of violations will exceed a one year period,
unless approved in advance by OE/DFO.
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Civil cases in which the violations
involve potential fraud or criminal misconduct by a person
or entity with respect to dealings with a plan. An exception
to this general rule is that voluntary compliance may be
undertaken if the appropriate U. S. Attorney (USA) has been
consulted and has agreed to a settlement by voluntary
compliance. Voluntary compliance may proceed upon receipt of
a written concurrence from the USA. In the instance of the
USA's oral concurrence, the RD should confirm the agreement
in a letter to the USA.
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Cases in which removal of a fiduciary
or a related entity may be warranted.
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Cases which involve individuals
previously determined to have violated ERISA or other
federal statutes.
6. Types of Cases in Which Voluntary
Compliance May Not Be Appropriate. Voluntary compliance may
not be suitable in cases involving novel or interpretive legal
issues or cases which involve complex fiduciary violations.
It is important to remember that these are
intended as general guidelines. In deciding which course of
correction to utilize, the RD should weigh the presence or
absence of each of the factors as well as the applicable civil
penalties and make a case-by-case determination. ROs are
encouraged to consult with OE/DFO when in doubt. See paragraph
7 of this chapter for procedures to follow in resolving
questions as to the proper course of correction.
7. Action to be Taken at the RO Level
Prior to Pursuing Voluntary Compliance. The RD is
responsible for ensuring that matters pursued through
voluntary compliance meet the guidelines in this chapter.
Further, it is the responsibility of the RD to ensure that
violations are fully documented and that the position taken in
the voluntary compliance (VC) notice letter is appropriate.
The method of accomplishing this is left to the discretion of
the RD.
If the RO requires assistance in
determining the proper disposition of a case, it should refer
the matter to OE/DFO. These referrals may, at the RD's
discretion, take the form of a telephone consultation or a
detailed memorandum. In the latter case, a proposed VC notice
letter may be attached.
8. VC Notice Letter
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VC Notice Letter. A VC notice
letter advises plan fiduciaries or others of the results of
an investigation, including which section(s) of ERISA have
been violated, and requests corrective action. The letter
does not threaten litigation (Figure 1).
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502(i). In situations where
the RD believes that voluntary compliance may be achieved,
and a 502(i) civil penalty is assessable, the RD should
discuss the case with OE/DFO before issuing a VC notice
letter. Footnote 4, (Figure 1) provides language to preserve
the Department’s ability to assess the 502(i) civil
penalty in cases where a VC notice letter precedes the
assessment of the penalty. All 502(i) assessment letters
are issued by OE. Chapter 35, Figure 1
is an example of a
502(i) assessment letter.
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502(l). ERISA section 502(l)
language should be added to any voluntary compliance
notice letter (1) which is addressed to a fiduciary with
respect to the plan or to a knowing participant in a
fiduciary breach, (2) which involves a violation of part 4
of Title I of ERISA, and (3) which contemplates a monetary
recovery to the plan (Figure 1).
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Interim Correspondence. When a
VC notice letter is issued containing ERISA section 502(i)
or 502(l) language, all interim correspondence should
include language which preserves the Department's ability to
assess the civil penalties. The admonition may be worded in
the following manner: "If you take proper corrective
action the Department will not bring a lawsuit with regard
to these issues. However, as pointed out in my previous
letter dated ____________________, ERISA section 502(l) requires the
Secretary of Labor to assess a civil penalty against a
fiduciary who breaches a fiduciary responsibility under, or
commits any other violations of, part 4 of Title I of ERISA
or any other person who knowingly participates in such
breach or violation."
9. Acceptable VC Settlement Terms.
The RO should confer with OE/DFO before accepting terms of
settlement less favorable than the following:
-
Repayment to the plan must be made
over a period of no longer than one year.(1) In instances in
which the statute of limitations will toll before the terms
of the settlement agreement are completed, the RO must
obtain a tolling agreement, which expires six (6) months
after the repayment period terminates;
-
Interest on repayments should be at
appropriate rates; and
-
All notes must be adequately secured.
Recovery, for voluntary compliance and
502(l) purposes, includes amounts paid to the plan which
represent losses incurred by the plan, disgorged profits, and
amounts necessary to achieve correction. This amount will be
determined as a part of the "settlement agreement"
with the party.
At the RD's discretion, cases involving a
final written settlement agreement, including the monetary
settlement of a 502(l) civil penalty, may be discussed with OE/DFO
staff prior to signature by the Department representative.
When the RO seeks guidance from OE/DFO related to the
assessment of a 502(l) penalty, the following documentation
should be submitted:
-
A copy of the draft 502(l) assessment
letter. The RO should use (Figure 2) as a model for 502(l)
civil penalty assessment letters. In situations where
consent decrees have been executed, a modified assessment
letter can be issued (See Chapter 35, Figure 2);
-
A worksheet indicating how the
applicable recovery amount was determined and how the 502(l)
penalty was computed;
-
Proof that payment of the applicable
recovery amount was actually made to the plan;
-
A copy of the Settlement Agreement;
and
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A copy of the voluntary compliance
notice letter and all subsequent correspondence.
10. Prohibited Transaction Class
Exemption 94-71. Prohibited Transaction Class Exemption
94-71 (PTE 94-71) [59 FR 51216 (October 7, 1994)] (Figure
3)
applies to certain prospective transactions involving employee
benefit plans and parties in interest where such transactions
are specifically authorized by the Department pursuant to a
settlement agreement. The exemption provides relief for a
prohibited transaction entered into by plan fiduciaries as
part of voluntary action taken to avoid litigation with the
Department following an investigation. The exemption covers
transactions that would otherwise violate ERISA
§§406(a)(1)(A) – (D), 406(a)(2), 406(b)(1) and 406(b)(2).(2)
These transactions or activities must be described in a
written settlement agreement which resulted from an
investigation of a plan by the Department. Affected
participants and beneficiaries must be provided with advance
notice of the proposed transaction at least 30 days prior to
the execution of the settlement agreement. PTE 94-71 is not
intended to serve as a retroactive exemption for transactions
that are in progress or have already occurred at the time of
settlement with the Department.
PTE 94-71 is similar in form and purpose to
PTE 79-15 which provides exemptive relief for certain
transactions authorized or required by judicial order or by a
judicially approved settlement decree where the Department or
the Internal Revenue Service has been a party to the
litigation. The underlying reason for both exemptions is to
facilitate the settlement process by eliminating the need for
an individual exemption. The exemption does not provide
exemptive relief for the underlying violation, but only for
the corrective action. Accordingly, ERISA §502 penalties and
IRS excise taxes remain applicable.
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Relief Provided. PTE 94-71
provides relief for prospective prohibited transactions or
activities involving employee benefit plans which are:
-
specifically authorized by the
Department, after conducting an investigation, in
accordance with the voluntary compliance guidelines found
in Chapter 34 of this Manual ;(3)
-
described in a written settlement
agreement which specifically details the nature of the
transaction to be entered into, and to which the
Department is a party, following the Department’s
investigation; and,
-
described in notices which must be
given to the affected participants and beneficiaries by
the party who will be engaging in the transaction or
activity, at least 30 days prior to the execution of the
settlement agreement.
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Types of Prospective Transactions
Covered Without OE Approval. PTE 94-71 contemplates
certain transactions for exemptive relief, typically
transactions that involve sales of property (real or
personal) between a plan and a party in interest.
-
Types of Prospective Transactions
Requiring OE Approval. Prior OE approval is required
before authorization for the following sale and loan
transactions:
-
Any transaction described in Chapter
34, Voluntary Compliance Guidelines, which requires
approval of OE.
-
Any transaction which, either by
reason of the amount or the type of non-cash assets
involved, does not have a clear relationship to the
transaction that the RO has determined violates Title I of
ERISA.
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All transactions or activities that
will exceed one year before completion.
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Safeguards and Conditions. In
negotiating the terms of an otherwise prohibited transaction
or activity to be authorized by EBSA, the following
conditions must be met.
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For transactions that involve the
sale of property (real or personal), securities,
promissory notes, or interest in limited partnerships
between a plan and a party in interest, the value of the
asset to be sold must be determined by a relevant, third
party source independent of all parties who have an
interest in the settlement agreement. Without prior
approval from OE, the valuations should not be determined
by any parties who are the subject of a EBSA investigation
or a defendant in a current ERISA-related legal action
taken by the Secretary of Labor.
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The plan may not pay any fees or
commissions in connection with the transaction.
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For transactions involving the sale
of a promissory note to a party in interest, the plan
should receive the greater of: (1) the fair market value
of the note; or (2) the outstanding balance of the note
plus accrued interest.
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In the case of a sale or transaction
involving the extension of credit to a party in interest,
the plan should receive a rate of interest reflecting
market rates for similar transactions. In addition, such
repayment should be guaranteed by an adequately secured
promissory note.
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The field office authorizing the
transaction or activity will monitor the transaction or
activity to ensure that the terms of the transaction have
been met.
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The field office must determine that
the transaction or activity is in the interests of the
participants and beneficiaries of the plan, and is
otherwise appropriate as part of the settlement of issues
raised by the investigation.
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Settlement Agreement. The
settlement agreement pursuant to PTE 94-71 (Figure
4), is an
agreement between the Department and a party or parties
which addresses the transactions or activities. The
exemption provides relief for corrective transactions
specifically described in the settlement agreement which
would otherwise violate sections 406(a)(1)(A) through (D),
406(a)(2), 406(b)(1) and 406(b)(2) of ERISA for transactions
that are in the interest of the plan but would be
prohibited. The Department must specifically agree to these
transactions as part of a settlement of the issues raised in
the voluntary compliance letter. The settlement agreement
shall contain language to protect the Department’s right
to pursue other issues raised in the VC letters, including
the imposition of civil penalties assessed on the underlying
transaction addressed in the settlement agreement.
-
Notice to
Participants/Beneficiaries. The notice requirements to
participants/beneficiaries specifically provide that
affected participants and beneficiaries must be given notice
of the proposed transaction(s) and of the opportunity to
comment on the proposed transaction(s) (Figure
5).
The written notice must meet the following
conditions:
-
The written notice and the method of
distribution must be approved in advance by the field office
that negotiated the settlement agreement.
-
The written notice must contain an
objective description of the transaction or activity; the
approximate date on which the transaction or activity will
occur; the address of the field office which negotiated the
settlement agreement; and a statement apprising participants
and beneficiaries of their right to forward their comments
to the field office. The notice to participants and
beneficiaries should include a statement that the Department
will keep the identity of commenters confidential to the
full extent permitted by law. Commenters, however, may elect
to submit information anonymously.
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The method used to furnish notice to
interested persons must be reasonably calculated to ensure
that interested persons will receive the notice. In all
cases, delivery in person and delivery by first class mail
to the party’s last known address will be considered
reasonable methods of furnishing notice.(4)
-
The written notice must be reasonably
calculated to be received by affected participants and
beneficiaries at least 30 days prior to the execution of the
settlement agreement by the applicant seeking the
prospective exemptive relief.
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ERISA §502 Civil Penalties and
Excise Tax. Granting an exemption will not affect the
liability of any persons for the payment of any civil
penalties imposed on applicable recovery amounts under ERISA
§502 attributing to the underlying violation (Chapter 35).
The parties to the alleged violation(s) will also remain
liable for any excise taxes owing under section 4975(a) and
(b) of the Internal Revenue Code with respect to
transactions or activities cited in the voluntary compliance
letter as prohibited under §406 of ERISA.
11. 502(l) Settlement Agreements. A
settlement agreement, pursuant to the Department's proposed
regulation 29 CFR 2560.502l-1(e), is defined as an agreement
between the Secretary and a person who the Secretary alleges
to have committed a breach of fiduciary responsibility under,
or other violation of any provision of, part 4 of Title I of
ERISA pursuant to which a claim for such breach or violation
is to be released by the Secretary in return for cash or other
property being tendered to a plan, any participant or
beneficiary of a plan, or the legal representative(s) of a
plan or plan participant or beneficiary.
Settlement Agreement No. 1 (Figure
6)
provides a written acknowledgement of both the agreed-upon
correction amount and the amount of the 502(l) penalty to be
assessed. Settlement Agreement No. 2 (Figure
7) also sets
forth the agreed-upon correction amount, but preserves the
right of the violator to contest the assessment of the 502(l)
penalty and to petition the Secretary for a waiver or
reduction of the civil penalty.
12. Procedures for Assessing the 502(l)
Penalty. When the RO has determined that a settlement
agreement has been effected, the RO should prepare and issue a
502(l) assessment letter.
The regulations require that the assessment
letter contain the following information:
-
A brief factual description of the
violation for which the assessment is being made;
-
The identity of the person being
assessed;
-
The amount of the assessment; and
-
The basis for assessing that
particular person that particular penalty amount. (See
Chapter 35)
13. Types of Closing Letters. When
it is determined that no further action will be taken with
regard to a case, a closing letter should be issued. In
instances when the RD determines that it is not advisable to
send a closing letter, a notation will be made to the file and
OE/DFO will be notified of the decision not to issue a closing
letter. The following are types of closing letters that should
be issued in the instances described.
-
Closing Letter – No ERISA
Violation Detected. This letter will be issued in all
cases in which no violations are detected. The same form
letter will be used in all such cases (Figure
9).
-
Closing Letter - No Action
Warranted. In some instances, it will be appropriate to
issue a closing letter other than the pattern-closing letter
(Figure 10). This letter would be appropriate and would be
authorized only if there is no evidence of willful
misconduct and one of the following criteria is satisfied:
-
The violations are de minimis, or
-
There are no actual or potential
monetary damages to the plan.
Use of this letter would be appropriate
when, e.g., an investigation disclosed a small prohibited
transaction which had been reversed with no harm to the plan,
or a plan failed to submit an accountant's opinion for a
particular year but submitted one for all subsequent years.
Unresolved reporting matters and the fact of their referral to
OCA should be reflected in the closing letter.
-
Closing Letter - Compliance
Achieved. The closing letter (Figure
8) will be issued
after a VC notice letter has been sent, corrective action
has been confirmed and either applicable penalties paid or
the payment period has expired. In addition, (Figure 8) will
also be adapted for use in situations where violations (1)
have been discussed with plan officials at the conclusion of
an investigation; (2) have been confirmed by the RD; and (3)
have been or will be corrected by the plan officials
pursuant to the discussions. Because no prior notice letter
would have been issued under these circumstances, the
closing letter must detail the violations as well as the
specific corrective actions agreed to by the plan officials
including 502(l) and 502(i) matters. In instances where
penalties assessed have not been paid by the end of the
payment period, (Figure 7) may be further modified.
-
Closing Letter - Referral to the
IRS. In certain situations where no voluntary compliance
has been attempted, and when the facts and issues do not
appear to justify the commitment of EBSA resources, it may
be appropriate to refer a case to the IRS for possible
imposition of excise taxes. In cases where the RO determines
that such a referral is appropriate, the plan will be so
notified by a closing letter (Figure 11). Unresolved
reporting matters and their referral to OCA should be
reflected in the closing letter.
-
Closing Letter - Compliance Not
Achieved. This closing letter will be issued after a VC
notice letter has been sent to plan fiduciaries and those
fiduciaries have denied the facts disclosed in the
investigation, have admitted the facts but deny the facts
constitute a violation of ERISA, or have otherwise failed to
comply with the terms of our notice letter (Figure
12). This
letter will be used only in situations in which no
enforcement action is contemplated and after consideration
of all possible courses of action. Unresolved reporting
matters and their referral to OCA should be reflected in the
closing letter.
14. Action to be Taken When Voluntary
Compliance Attempts Prove Unsuccessful in Whole or in Part.
In all cases where voluntary compliance attempts prove
unsuccessful in whole or in part, the RO must consider all
possible courses of action within its delegated authority for
resolving or closing the case. In the event the RO believes
that the case merits litigation, the case should be referred
to OE/DFO or to the RSOL, as appropriate.
Cases may also be sent to OE/DFO for
guidance on appropriate action to be pursued, which may
include referral to SOL, referral to DOJ, referral to the IRS
for the imposition of an excise tax, assessment of the 502(i)
civil penalty, or closing. In cases where partial compliance
is achieved and the 502(l) civil penalty is applicable, the
penalty shall be assessed on the applicable recovery amount.
In appropriate cases where voluntary
compliance is not achieved, consideration should be given to
disclosing the results of the investigation to affected
parties, e.g., by sending them a copy of the closing letter.
If the investigation arose as a result of a complaint by a
participant, beneficiary or fiduciary with respect to the
plan, disclosure may be made to that person unless the
information to be disclosed was obtained pursuant to Rule
6(e), Federal Rules of Criminal Procedure, section 6103 of the
IRC, the Department's agreement with the Federal Financial
Institution Regulatory Agencies, or from some other source
requiring confidentiality (see Chapter 20).
In instances when reporting violations
pursuant to part 1 of ERISA were not corrected through
voluntary compliance, these issues should be forwarded to OCA. See Chapter 53, item 13.b. If a referral
is made to OCA prior to closing the investigation, the RO
should indicate the status of the investigation at the time of
the referral so that OCA can coordinate its review with other
enforcement actions. It is particularly important to notify
OCA when an independent fiduciary is appointed, and a possible
reporting violation has been found.
15. Duration of Voluntary Compliance
Negotiations. Voluntary compliance negotiations should be
conducted within a reasonable time period. While the length of
the process will vary according to the circumstances of the
particular investigation and the parties involved, generally
there should be no long time lapses between initiation of
voluntary compliance efforts and conclusion of any
negotiations regarding compliance (although the corrective
action may occur over a more extended period). Special care to
avoid undue delay should be exercised when the investigation
is likely to be referred for litigation if the voluntary
compliance process proves unsuccessful.
16. SBREFA Notice. In accordance
with the provisions of the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA), the Small Business
Administration has established a National Small Business and
Agriculture Regulatory Ombudsman and 10 Regional Small
Business Regulatory Fairness Boards to receive comments from
small businesses about federal agency enforcement actions. The
Ombudsman annually evaluates enforcement activities and rates
each agency’s responsiveness to small businesses. If a small
business wishes to comment on the enforcement actions of EBSA,
it may call 1.888.REG-FAIR (1.888.734.3247) or write to the
Ombudsman at 409 3rd Street SW, MC 2120,
Washington, DC 20416.
Notice of the right to comment to the
SBREFA Ombudsman will be provided by copy of the EBSA Customer
Service Standards pamphlet to all plan sponsors, plans, or
plan service providers with fewer than 100 participants or
employees during the course of ERISA Title I civil
investigations. Discretion is granted to EBSA Regional
Directors regarding the timing of the delivery of the
pamphlet/notice on a case by case basis. The case file must
reflect appropriate documentation of the SBREFA notice.
The right to file a comment with the
Ombudsman does not affect EBSA’s authority to enforce or
otherwise seek compliance with ERISA. The filing of a comment
by a small business with the Ombudsman is not a substitute for
complying with an EBSA subpoena or addressing EBSA’s
proposed corrective action in a timely manner to protect
business’ interests.
(Figure 1)
Certified Mail, Return Receipt Requested
Name
Address
Re: XYZ Plan
EBSA Case No. XX-XXXXXX
Dear :
The Department of Labor (the Department)
has responsibility for administration and enforcement of Title
I of the Employee Retirement Income Security Act of 1974 (ERISA).
Title I establishes standards governing the operation of
employee benefit plans such as XYZ Plan.
This office has concluded its investigation
of the Plan and of your activities as its trustee. Based on
the facts gathered in this investigation, and subject to the
possibility that additional information may lead us to revise
our views, it appears that, as trustee, you may have violated
several provisions of ERISA. The purpose of this letter is to
advise you of our findings and to give you an opportunity to
comment before the Department determines what, if any, action
to take.
As we understand the facts, many of which
you provided to this office during the course of our
investigation, on December 1, 2005, the Plan loaned $25,000 to
Mr. Smith, who is a trustee of the Plan and a Plan
participant. As a trustee of the Plan, Mr. Smith is a
fiduciary within the meaning of ERISA section 3(21). In
addition, as a Plan participant, Mr. Smith is a party in
interest to the Plan within the meaning of ERISA section
3(14). This loan is unsecured and bears an interest rate of
5%. It is our view that this loan violates ERISA sections
406(a)(1)(B) and 406(b)(1) which provide:
406(a)(1) |
A fiduciary with respect to a
plan shall not cause the plan to engage in a transaction, if
he knows or should know that such transaction constitutes a
direct or indirect- |
|
(B) lending of money or other extension
of credit between the plan and a party in interest; and |
406(b) |
A fiduciary with respect to a plan
shall not -- |
|
(1) deal with the assets of the plan in
his own interest or for his own account. |
In addition, our investigation has
disclosed that (outline additional facts and violations as
above).
In our view, for the reasons cited above,
you are in violation of ERISA and will remain so as long as
the loan in question remains outstanding. We invite you to
discuss with us how these violations may be corrected and the
losses may be restored to the Plan.
We have provided the foregoing statement of
our views to help you evaluate your obligations as a fiduciary
within the meaning of ERISA. Should you fail to take
corrective action, this matter may be referred to the Office
of the Solicitor of Labor for possible legal action. In
addition to any possible legal action by the Department, you
should also be aware that the Secretary, pursuant to section
504(a) of ERISA, is authorized to furnish information to
"any person actually affected by any matter which is
the subject" of an ERISA investigation. Further, even if
the Secretary decided not to take any legal action in this
matter, you would nonetheless remain subject to suit by other
parties including plan fiduciaries and plan participants or
their beneficiaries.
If you take proper corrective action the
Department will not bring a lawsuit with regard to these
issues.(5) However, ERISA section 502(l) requires the Secretary
of Labor to assess a civil penalty against a fiduciary who
breaches a fiduciary responsibility under, or commits any
other violation of, part 4 of Title I of ERISA or any other
person who knowingly participates in such breach or violation.
The penalty under section 502(l) is equal to 20 percent of the
"applicable recovery amount", a term which means any
amount recovered from a fiduciary or other person with respect
to a breach or violation either pursuant to a settlement
agreement with the Secretary or ordered by a court to be paid in a judicial
proceeding instituted by the Secretary.(6) Further, you should
understand that the Department is speaking only for itself and
only with regard to the issues discussed above. The Department
has no authority to restrain any third party or any other
governmental agency from taking any action it may deem
appropriate.
We hope this letter will be helpful to you
in the execution of your fiduciary duties, and that, in
respect to the specific matters discussed, you will promptly
take appropriate corrective action. Please advise me, in
writing, within 10 days of the date of this letter what action
you intend to take to correct the violation(s) described
above.
Sincerely,
Regional Director
bcc: OE
(Figure 2)
Certified Mail, Return Receipt Requested
Re: Notice of Assessment of ERISA Section
502(l) Civil Penalty in the Matter of (Name of Case)
EBSA Case No. ________________________
Dear Mr./Ms.:
As I pointed out in my previous letter
dated ____________________, the Department of Labor (the Department) has
responsibility for the enforcement of Title I of the Employee
Retirement Income Security Act of 1974 (ERISA). Title I
establishes standards governing the operation of employee
benefit plans such as the ____________________ Plan (the Plan).
As noted in the letter of (date), this
office has concluded its investigation of the Plan and of your
activities as ____________________. Based on the facts
gathered during that investigation, we have concluded that, as
____________________, you violated your fiduciary obligations to the
Plan and violated several provisions of ERISA. The specific
actions taken by you that violated ERISA were detailed in my
previous letter, a copy of which is enclosed and incorporated
herein.
My previous letter offered you an
opportunity to obtain a release from certain further action,
other than the imposition of the civil penalty required by
ERISA section 502(l), by correcting the ERISA violation(s) and
restoring losses to the plan. Based on your letter-dated
____________________, [if applicable] we understand that you have taken
such action in response to this offer. Specifically, you
[detail actions taken].
Because you have taken the agreed-upon
corrective action with respect to the specific violations
detailed in my letter of (date), the Department will take no
further action with respect to these matters, except the
imposition of the civil penalty as required by ERISA section
502(l).
ERISA section 502(l) requires the Secretary
of Labor to assess a civil penalty against a fiduciary who
breaches a fiduciary responsibility under, or commits any
other violation of, part 4 of Title I of ERISA or any other
person who knowingly participates in such breach or violation.
The penalty under section 502(l) is equal to 20 percent of the
applicable recovery amount.
We have determined that the applicable
recovery amount is $____________________, which was paid on
____________________.
Based on the authority granted to the Secretary under section
502(l) of ERISA and the regulations thereunder, EBSA is
assessing a civil penalty of $____________________ against you.
Please be advised that the payment of this civil penalty is an
expense that is not tax-deductible under federal tax laws (26
U.S.C. 162(f)). If you want further information, please
contact the Internal Revenue Service at 1-800-829-1040.
You have 60 calendar days from the date of
this notice of assessment to pay the assessed amount. At any
time prior to the expiration of that 60-day period, you may
submit a written request for a conference to discuss the
calculation of the assessed penalty. The 60-day payment period
will not, however be tolled upon such request.
At any time prior to the expiration of the
60-day period, you may petition the Secretary to waive or
reduce the assessed penalty, as explained in the attachment
"Procedures Under ERISA Section 502(l)". If a
petition for waiver or reduction is submitted during the
60-day payment period, the payment period for the penalty will
be tolled pending Departmental consideration of the petition.
The petition should be mailed to the following address:
Regional Director
Address
If you determine not to contest this
matter, the payment should be remitted by check or money order
in the amount of $____________________ payable to the United States
Department of Labor. The check should be mailed to the
following address:
Regular U.S. Mail |
For overnight courier the address is: |
U.S. Department of Labor
ERISA Civil Penalty
P.O. Box 70942
Charlotte, NC 28272-0942 |
U.S. Department of Labor
QLP Wholesale Lockbox - NC0810
Lockbox #70942
1525 West WT Harris Blvd
Charlotte, NC 28262 |
To ensure correct processing of this
payment, please include the EBSA Case Number (listed at the
top of this letter) on the front of your check, as well as a
copy of this letter. You should also notify me that you have
paid the civil penalty so that we may close our case.
[Please also be advised that pursuant to
section 3003(c) of ERISA, the Secretary of Labor is required
to transmit to the Secretary of the Treasury information
indicating that a prohibited transaction has occurred.
Accordingly, this matter will also be referred to the Internal
Revenue Service. The penalty assessed under ERISA section
502(l) will be reduced by the amount of any tax imposed with respect
to such transaction under section 4975 of the Internal Revenue
Code, as further explained in the attachment "Procedures
Under ERISA Section 502(l)".](14)
Sincerely,
Regional Director
Enclosures: |
Letter dated from Regional Director to ____________________ (voluntary compliance notice letter)
|
"Procedures Under ERISA Section 502(l)"
|
bcc: |
OE, OPPEM
|
(Figure 2)
A. The Civil Penalty Under ERISA Section 502(l)
Section 502(l) of the Employee Retirement
Income Security Act (ERISA), 29 U.S.C. 1132(l), requires the
Secretary of Labor to assess a civil penalty against a
fiduciary who breaches a fiduciary responsibility under, or
commits any other violation of, part 4 of Title I of ERISA or
any other person who knowingly participates in such breach or
violation. The penalty under section 502(l) is equal to 20
percent of the applicable recovery amount.
In this regard, the Secretary of Labor has
delegated to EBSA most of the Secretary's responsibilities
under ERISA.
An interim regulation implementing section
502(l) was published effective June 20, 1990 [55 Fed. Reg.
25,284 (1990) (to be codified at 29 C.F.R. Part 2570)]. In
addition, a proposed substantive regulation has been published
for notice and comment [55 Fed. Reg. 25,288 (1990) (to be
codified at 29 C.F.R. Part 2560)].
B. How To Petition For Waiver Or Reduction Of The Civil Penalty
1. Your Petition
You will receive a notice of assessment of
the 502(l) civil penalty in the form of a letter from EBSA.
You have 60 calendar days from the date of the notice of
assessment to pay the assessed civil penalty. At any time
prior to the expiration of the 60 day period, you may petition
the Secretary to waive or reduce the assessed penalty, as
provided in the statute, on the basis that: (1) you acted
reasonably and in good faith in engaging in the breach or
violation; or (2) you will not be able to restore all losses
to the plan or any participant or beneficiary of such plan
without severe financial hardship unless such waiver or
reduction is granted. A petition to waive or reduce must be in
writing and must contain the following information:
-
The name of the petitioner;
-
A detailed description of the breach
or violation which is the subject of the penalty;
-
A detailed recitation of the facts
which support one, or both, of the bases for waiver or
reduction, accompanied by underlying documentation
supporting such factual allegations; and,
-
A declaration signed and dated by the
petitioner(s), in the following form: Under penalty of
perjury, I declare that, to the best of my knowledge and
belief, the representations made in this petition are true
and correct.
If your petition is based, in whole or in
part, on financial hardship, it would be helpful in the
consideration of your petition if you would provide financial
information such as your Federal income tax returns for the
last two years and a notarized financial statement.
As a general matter, in determining whether
a fiduciary or knowing participant acted reasonably and in
good faith, EBSA will examine the decision making process with
respect to the transaction in question to determine whether it
was designed to adequately safeguard the interest of the
participants and beneficiaries of the plan. In the absence of
such decision making process, actual favorable investment
return to the plan will not provide a sufficient showing that
a person acted reasonably and in good faith with regard to a
particular transaction. You may wish to refer to ERISA
Technical Release Number 85-1 for general guidelines
concerning the Department's previously articulated views
concerning evidence of good faith. This release can be found
in the current edition of Prentice-Hall's Pension and Profit
Sharing loose-leaf service, paragraph 110,735.
2. How Your Petition is Processed
If your petition for waiver or reduction is
based on financial hardship, a determination of whether to
reduce or waive the penalty on this basis will be made by the
EBSA Regional Director who originally assessed the civil
penalty. If your petition is based on good faith, the Regional
Director will forward your petition to EBSA’s Office of
Exemption Determinations in Washington, D.C., where the
decision will be made whether to reduce or waive the penalty
on the basis of good faith. If your petition is based both on
financial hardship and good faith, your petition will first be
considered by the Regional Director, and will be forwarded to
the Office of Exemption Determination only if the petition is
denied on the basis of financial hardship.
Should a decision be made to deny either
petition, in whole or part, you are entitled to a conference
with the Department to discuss the factual allegations
contained in each petition. Any additional conferences,
however, are at the discretion of the Department.
You will be served with a written
determination informing you of the decision made on your
petition. This written determination will briefly state the
grounds for the decision. As provided in ERISA section 502(l),
this decision is final and neither reviewable nor appealable.
In the case of a determination not to waive, the payment
period for the penalty will resume as of the date of service
of the written determination.
C. Excise Tax Under Internal Revenue Code 4975
1. What is the Excise Tax?
When Congress enacted ERISA, it added
section 4975 to the Internal Revenue Code of 1954, which
imposes an excise tax on disqualified persons (generally, the
same as parties in interest under Title I of ERISA) who engage
in prohibited transactions with employee retirement benefit
plans. In general, this excise tax, which is administered and
enforced by the Internal Revenue Service, is applicable in two
steps--a first level tax equal to fifteen percent of the amount
involved in the transaction for each taxable year during which
the transaction is outstanding and a second level tax, equal
to 100 percent of the amount involved if the transaction is
not corrected. The excise tax is paid concurrently with the
filing of a Form 5330 (Form and Instructions attached).
2. Offset Procedures
Any penalty assessed under ERISA section
502(l) with regard to any particular transaction will be
reduced by the amount of any excise tax paid by you with
respect to such transaction under section 4975 of the Internal
Revenue Code, exclusive of any interest or penalties paid
thereon. Prior to such a reduction, you must provide proof to
EBSA of your payment of the excise tax and the amount of such
payment. The offset applies only to payments actually made,
and does not apply to mere assessments; thus, submissions of
proof of your tax assessment will not toll the 60-day payment
period for ERISA section 502(l).
If, based on information gained through
submission of proof of excise tax payment, EBSA determines
that a previously issued notice of assessment should be
revised, EBSA will issue a revised notice of assessment, and
you will be obligated to pay the revised assessed penalty
within the relevant 60 day period and, where necessary, any
excess penalty payment will be refunded as soon as
administratively feasible.
D. The Civil Penalty Under ERISA Section 502(i)
1. What is the Civil Penalty Under ERISA
Section 502(i)?
Section 502(i) of ERISA authorizes the
Secretary of Labor to impose upon a party in interest a civil
penalty of 5 percent of the amount involved in connection with
a prohibited transaction with a health and welfare plan or a
non-qualified pension plan. If the prohibited transaction is
not corrected within 90 days, a penalty of 100 percent may be
imposed.
2. Offset Procedures
Any penalty assessed under ERISA section
502(l) with regard to any particular transaction will be
reduced by the amount of any penalty paid by you with respect
to such transaction under ERISA section 502(i). Prior to such
a reduction, you must provide proof to EBSA of your payment of
the penalty and the amount of such payment. The offset applies
only to payments actually made, and does not apply to mere
assessments; thus, submissions of proof of your penalty
assessment will not toll the 60-day payment period for ERISA
section 502(l).
If, based on information gained through
submission of proof of penalty payment, EBSA determines that a
previously issued notice of assessment should be revised, EBSA
will issue a revised notice of assessment, and you will be
obligated to pay the revised assessed penalty within the
relevant 60 day period and, where necessary, any excess
penalty payment will be refunded as soon as administratively
feasible.
(Figure 3)
Department Of Labor
Employee Benefits Security Administration
[Prohibited Transaction Exemption 94-71;
Application No. D-9484]
Grant of Class Exemption to Permit Certain
Transactions Authorized Pursuant to Settlement Agreements
Between the U.S. Department of Labor and Plans
Agency: Employee Benefits Security
Administration
Action: Grant of Class Exemption
Summary: This document contains a final
exemption from certain prohibited transaction restrictions of
the Employee Retirement Income Security Act of 1974 (ERISA)
and the Internal Revenue Code of 1986 (the Code). The class
exemption applies to certain prospective transactions
involving employee benefit plans where such transactions are
specifically authorized by the Department pursuant to a
settlement agreement. The exemption affects plans,
participants and beneficiaries of such plans, and certain
individuals engaging in such transactions or activities.
For further information contact: Eric
Berger, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor 202.219.8971 (not a toll-free number); or Vicki Shteir-Dunn, Plan
Benefits Security Division, Office of the Solicitor, U.S.
Department of Labor 202.219.8610 (not a toll-free number).(7)
Supplementary Information: On May 27, 1994,
the Department of Labor (the Department) published a notice in
the Federal Register (59 FR 27581) of the pendency of a
proposed class exemption from the restrictions of section
406(a)(1)(A) through (D), 406(a)(2), 406(b)(1) and 406(b)(2)
of ERISA and from the taxes imposed by section 4975(a) and (b)
of the Code, by reason of section 4975(c)(1)(A) through (E) of
the Code.
The Department proposed the class exemption
on its own motion pursuant to section 408(a) of ERISA and
section 4975(c)(2) of the Code, and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (55 FR
32836, August 10, 1990).(8)
The Notice gave interested persons an
opportunity to submit written comments or requests for a
hearing on the proposed exemption to the Department. No public
comments and no requests for a public hearing with respect to
the proposed class exemption were received by the Department.
Upon consideration of the record as a whole, the Department
had determined to grant the class exemption as proposed.(9)
General Information
The attention of interested persons is
directed to the following:
-
The fact that a transaction is the
subject of an exemption under section 408(a) of ERISA and
section 4975(c)(2) of the Code does not relieve a fiduciary or
other party in interest or disqualified person with respect to
a plan from certain other provisions of ERISA and the Code,
including any prohibited transaction provisions to which the
exemption does not expressly apply and the general fiduciary
responsibility provisions of section 404 of ERISA. Section 404
requires, in part, that a fiduciary discharge his or her
duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent
fashion in accordance with section 404(a)(1)(B) of ERISA. This
exemption does not affect the requirement of section 401(a) of
the Code that a plan must operate for the exclusive benefit of
the employees of the employer maintaining the plan and their
beneficiaries.
-
The exemption will not extend to
transactions prohibited under section 406(b)(3) of ERISA and
section 4975(c)(1)(F) of the Code.
-
In accordance with section 408(a) of
the Act and section 4975(c)(2) of the Code, and based upon the
entire record, the Department finds that the exemption is
administratively feasible, in the interest of plans and of
their participants and beneficiaries and protective of the
rights of the participants and beneficiaries of such plans.
-
The exemption is supplemental to, and
not in derogation of other provisions of ERISA and the Code,
including statutory or administrative exemptions and
transitional rules. Furthermore, the fact that a transaction
is subject to an administrative or statutory exemption is not
dispositive of whether the transaction is in fact a prohibited
transaction.
-
The exemption is applicable to a
transaction only if the conditions specified in the class
exemption are satisfied.
Exemption
Accordingly, the following exemption is
granted under the authority of section 408(a) of the Act and
section 4975(c)(2) of the Code, and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (55 FR
32836, August 10, 1990).
Effective as of October 7, 1994, the
restrictions of section 406(a)(1)(A) through (D), 406(a)(2),
406(b)(1) and 40b(b)(2) of ERISA and the taxes imposed by
section 4975(a) and 4975(b) of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code, shall not apply to a
transaction or activity which is authorized, prior to the
occurrence of such transaction or activity, by a settlement
agreement resulting from an investigation of an employee
benefit plan conducted by the Department under the authority
of section 504(a) of ERISA provided that:
-
The nature of such transaction or
activity is specifically described in writing, by the terms
of such settlement agreement.
-
The Department of Labor is party to
the settlement agreement.
-
A party who will be engaging in the
transaction or activity has provided written notice to the
affected participants and beneficiaries in a manner that is
reasonably calculated to result in the receipt of such
notice at least 30 days prior to entry into the settlement
agreement.
-
A copy of the notice and the method
of distribution is approved in advance by the area or
district office of the Department which negotiated the
settlement.
-
The notice includes an objective
description of the transaction or activity, the approximate
date on which the transaction will occur, the address of the
area or district office of the Department which negotiated
the settlement agreement, and a statement apprising the
participants and beneficiaries of their right to forward
their comments to such office.
Signed at Washington, DC, this 30th day of
September 1994.
Alan D. Lebowitz
Deputy Assistant Secretary of Program Operations
Employee Benefits Security Administration
U.S. Department of Labor
(Figure 4)
This Agreement, entered into by and between
the United States Department of Labor, Employee Benefits
Security Administration (EBSA) and the [Trustee (“the
Trustee”)] of the ____________________ (“the Plan”)
shall fully resolve and settle between these parties the
following issues:
[Description of Transaction]
No other issues or violations cited in the
[date] letter to the Trustee are subject to the terms of this
agreement.
Having received the [date] letter, the
Trustee has entered into negotiations with EBSA, and the
parties have made the following representations:
-
EBSA continues to believe that the
above-described transaction(s) violate ERISA Sections
[provide relevant sections].
-
The Plan continues to [state violative
actions].
-
____________________ is a party
in interest to the plan under section 3(14) of ERISA.
-
The Trustee proposes to correct this
violation(s) by:
hereinafter referred to as “the Correction.”
-
No fees or commissions incurred in
connection with the Correction will be paid by the Plan.
-
_____________________ is willing
to [state activity].
-
The Correction would constitute a
prohibited transaction under Section 406 or 407 of ERISA.
-
Written notice of the Correction was
provided to the Plans’ participants and beneficiaries by
[describe the method of delivery]. This notice advised the
affected plan participants and beneficiaries of their right
to forward comments on the Correction to EBSA. A copy of
such written notice is incorporated into this Agreement as
Exhibit ____________________. (Figure
6)
-
EBSA is required to assess a civil
penalty of twenty percent (20%) on amounts recovered
pursuant to a settlement agreement or court order (“applicable
recovery amount”), pursuant to ERISA section 502(l)(2), 29
U.S.C. Section 1132(1)(2).
-
The Trustee reserves all rights to
contest the assessment and calculation of the civil penalty
under ERISA Section 502(l), 29 U.S.C. Section 1132(l), and
to petition the Secretary of Labor for a waiver or reduction
of such civil penalty.
-
This Agreement is not binding on any
governmental agency other than the U.S. Department of Labor.
-
This settlement agreement is limited
to the transactions which are being corrected by the
previously described Correction. This agreement shall not
affect, in any manner, or for any purpose, the Secretary’s
claims with respect to any other issues, nor shall it affect
the relief obtainable by the Secretary on these issues.
Further, the Department notes that his settlement agreement
does not provide relief for any penalties which may be
imposed by the Department or the Internal Revenue Service on
the underlying transactions or activities cited as
violations by the Department.
Now, in consideration of such
representations [the Trustees] and EBSA agree as follows:
-
____________________ will
[describe activity].
-
The Trustees shall provide to EBSA
evidence of the Correction which is deemed sufficient by
EBSA to ensure that the terms of this Agreement have been
fulfilled.
-
EBSA will take no further
enforcement action with respect to the Plan’s underlying
violation which is the subject of this settlement agreement
other than the imposition of any relevant civil penalties
under ERISA section 502(l), 29 U.S.C. Section 1132(l). In
the event that the representations made by the trustees in
paragraphs 2, 4, 6, and 8 of this Agreement are not true and
correct, then this entire agreement is null and void.
-
The Correction is provided exemptive
relief under PTE 94-71.
-
Each of the signatories below hereby
represents that he or she is authorized and entitled to sign
on behalf of the parties hereto.
Dated this ____________________ day of
____________________, 20____________________.
For: ____________________
By:____________________
For: The United States Department of Labor,
Employee Benefits Security Administration
By: ____________________
Regional Director
(Figure 5)
You are hereby notified that the United
States Department of Labor is considering granting an
exemption from the prohibited transaction restrictions of the
Employee Retirement Income Security Act of 1974 (“ERISA”)
and the Internal Revenue Code of 1986, as amended, with
respect to the proposed [sale of certain real property] held
by the ____________________ (“the
Plan”) to ____________________ (“the Company). In
accordance with the notice requirements of Prohibited
Transaction Class Exemption 94-71, you are hereby provided
with the following information regarding the proposed
transaction:
-
Description of Transaction(s).[e.g.
the Plan purchased and leased two parcels of real property
to . . . ];
-
In order to resolve this matter, the
company will [provide case-specific information relating to
corrected transaction];
-
Approximate date on which Proposed
Transaction will occur: [date]
-
As a person who may be affected by
this exemption, you have the right to comment on the
proposed exemption by [date]. If you may be adversely
affected by the grant of the exemption, you also have the
right to request a hearing on the exemption by [date].
-
Comments concerning this exemption,
which may be sent anonymously, should be addressed to:
United States Department of Labor, Employee Benefits
Security Administration, [Regional Office Address].
-
The Department of Labor will make no
decision on the proposed exemption until it reviews all
comments received in response to this Notice. If the
Department of Labor decides to hold a hearing on the
exemption before making its final decision, you will be
notified of the time and place of the hearing.
(Figure 6)
This Agreement, entered into by and between
the United States Department of Labor, Employee Benefits
Security Administration (EBSA) and ____________________, shall fully and finally
resolve and settle the issues between the parties that were
raised by EBSA in its letter to ____________________ dated
____________________ and which are set forth
as follows:
(Briefly describe issues.)
Whereas, in connection with this Agreement,
____________________ has agreed to pay $X to the
____________________ Plan (the plan);
Whereas, EBSA is required to assess a civil
penalty of twenty percent (20%) on amounts recovered under a
settlement agreement or court order ("applicable recovery
amount"), pursuant to ERISA section 502(l)(2), 29 U.S.C.
section 1132(l)(2);
Whereas, EBSA has determined that the
applicable recovery amount within the meaning of ERISA section
502(l), 29 U.S.C. section 1132(l) is $Y;
Whereas, this Agreement is not binding on
any governmental agency other than the United States
Department of Labor.
Therefore, in consideration of these mutual
undertakings and understandings, EBSA and ____________________ agree as follows:
-
____________________ shall, within
____________________ days of the signing of
this Agreement, pay $X to the Plan.
-
Upon payment of $X to the Plan pursuant
to this Agreement EBSA will assess a penalty of twenty percent (20%) of the applicable
recovery amount, pursuant to ERISA section 502(l)(2), 29 U.S.C.
section 1132(l)(2); said penalty amount to be paid will be $Y,
which represents 20% of the portion of the applicable recovery
amount.
-
Within ten (10) days of receipt of EBSA’s
assessment letter, ____________________ shall pay said penalty as directed in the
letter from EBSA’s authorized representative.
-
(Other relief, if any, agreed to between
the parties.)
-
Each of the signatories below hereby
represents that he or she is authorized and entitled to sign
on behalf of each of the parties hereto.
Dated this ____________________ day of
____________________, 20____________________.
For
By:
For: The United States Department of Labor,
Employee Benefits Security Administration
By:
Regional Director
(Figure 7)
This Agreement, entered into by and between
the United States Department of Labor, Employee Benefits
Security Administration (EBSA), and ____________________, with the exception of
issues concerning the assessment of a civil penalty under
ERISA section 501(l), 29 U.S.C. section 1132(l), shall fully
and finally resolve and settle the issues between the parties
that were raised by EBSA in its letter to ____________________, dated
____________________, and which
are set forth as follows:
(Briefly describe issues.)
Whereas, in connection with this Agreement,
____________________ has agreed to pay $X to the
____________________ Plan (the Plan);
Whereas, EBSA maintains that it is required
to assess a civil penalty of twenty percent (20%) on amounts
recovered under a settlement agreement or court order
("applicable recovery amount"), pursuant to ERISA
section 502(l)(2), 29 U.S.C. section 1132(l)(2);
Whereas, ____________________ reserves all rights to contest the
assessment and calculation of the civil penalty under ERISA
section 502(l), 29 U.S.C. section 1132(l), and to petition the
Secretary of Labor for a waiver or reduction of the civil
penalty;
Whereas, this Agreement is not binding on
any governmental agency other than the United States
Department of Labor.
Therefore, in consideration of these mutual
undertakings and understandings, EBSA and ____________________
agree as follows:
-
____________________ shall, within
____________________ days of the signing of
this Agreement, pay $X to the Plan.
-
Each of the signatories below hereby
represents that he or she is authorized and entitled to sign
on behalf of each of the parties hereto.
Dated this ____________________ day of , 20
____________________.
For ____________________
By:
For: The United States Department of Labor,
Employee Benefit Security Administration
By:
Regional Director
(Figure 8)
Corrective Action Taken
[heading]
Dear :
I have received your letter dated
____________________ concerning the ____________________ Plan which
was in response to my letter dated ____________________.
As I pointed out in my previous letter, the
Department of Labor (the Department) has responsibility for
the enforcement of Title I of the Employee Retirement Income
Security Act of 1974. Title I establishes standards governing
the operation of employee benefit plans.
As I noted, this office has concluded its
investigation of the Plan and of your activities as its
trustee. Based on the facts gathered during that investigation
it appeared that, as a trustee, you breached your fiduciary
obligations to the Plan and violated several provisions of
ERISA. The specific actions taken by you which we believe
violated ERISA were detailed in my previous letter.
In your letter dated ____________________, I note
that you confirm the facts recited in my letter to you. It is
my understanding that you have taken corrective actions with
respect to the specific violations detailed in my letter of
____________________. Specifically, you (detail actions taken).
Because you have taken the corrective
action described above, the Department will take no further
action with respect to these matters.(10) You are cautioned,
however, that by agreeing to take no further action with
regard to these issues, the Department commits only itself and
cannot in any way restrain any other individual or
governmental agency from taking any further action it may deem
appropriate with respect to either these or other matters.
You must be aware that the responsibility for the acceptance or rejection of any Annual Report (Form 5500) or any part thereof is delegated to the EBSA Office of the Chief Accountant (OCA). [The final decision concerning the adequacy of any Annual Report or any part thereof will be made by the OCA pursuant to the federal regulations set forth at 29 C.F.R. 2570.61 et seq.](13)
[Further, as you may be aware, Congress, in
enacting ERISA, added Section 4975 to the Internal Revenue
Code of 1954, which imposes an excise tax on disqualified
persons (generally, the same as parties in interest under
Title I of ERISA) who engage in prohibited transactions with
employee retirement benefit plans. In general, this excise
tax, which is administered and enforced by the Internal
Revenue Service, is applicable in two steps - a first
level tax equal to fifteen percent of the amount involved in the
transaction for each taxable year during which the transaction
is outstanding and a second level tax, equal to 100 percent of
the amount involved if the transaction is not corrected. The
excise tax is paid concurrently with the filing of a Form 5330
(Form and Instructions enclosed).
Please also be advised that pursuant to
section 3003(c) of ERISA, 29 U.S.C. section 1203(c), the
Secretary of Labor is required to transmit to the Secretary of
the Treasury information indicating that a prohibited
transaction has occurred. Accordingly, this matter will be
referred to the Internal Revenue Service.](14)
Sincerely,
Regional Director
Enclosures: |
Explanation sheet on Form 5330 |
Form 5330 |
Instructions for Form 5330 |
SBREFA Notice(11) |
bcc: |
OPPEM (When 502(l) issues are
involved) |
OE/DFO |
(Figure 8)
Return of Initial Excise Taxes Related to Pension and Profit Sharing Plans
Filing Information
In accordance with section 3003(c) of ERISA,
29 U.S.C. §1203(c), the Department of Labor (DOL) is required
to transmit to the Internal Revenue Service (IRS) information
that a prohibited transaction has occurred.
If you are in agreement with DOL's
determination that a prohibited transaction has occurred,
please complete IRS Form 5330 in accordance with the instructions
provided and mail to:
Ogden Internal Revenue Service Center
1160 W 1200 S
Ogden, Utah 84201
By voluntarily filing IRS Form 5330 through
this office, the IRS will be able to associate the return with DOL's
notification that a prohibited transaction has occurred. This
will assist the IRS in determining whether or not an IRS employee
plans examination is warranted.
Any questions you may have on completing
the IRS Form 5330 should be directed to:
IRS TE/GE Tax Services
1 (877) 829-5500
(Figure 9)
No ERISA Violations Detected
Dear (Plan Administrator or Fiduciary):
The Department of Labor (the Department)
has recently conducted an investigation involving (name of
plan) pursuant to the Employee Retirement Income Security Act
of 1974. (We appreciate the cooperation you and members of
your staff have extended to us.) This is to advise you that
our investigation is now concluded and [with the exception of
the reporting violations noted above,](12) no further action by
the Department is contemplated at this time.
You must be aware that the responsibility for the acceptance or rejection of any Annual Report (Form 5500) or any part thereof is delegated to the EBSA Office of the Chief Accountant (OCA). [You are cautioned that this notice does not address the reporting issues described above. The final decision whether the reporting violations described above have been adequately corrected will be made by the OCA pursuant to the federal regulations set forth at 29 C.F.R. 2570.61 et seq. Accordingly, the reporting issues will be referred to the OCA for whatever action they deem appropriate.](13)
Sincerely,
Regional Director
Enclosure: SBREFA Notice(11)
(Figure 10)
No Action Warranted
This closing letter should not be used in a 502(l) or
502(i) situation
[heading]
Dear:
The Department of Labor (the Department)
has responsibility for administration and enforcement of Title
I of the Employee Retirement Income Security Act of 1974 (ERISA).
Title I establishes standards governing the operation of
employee benefit plans such as XYZ Plan (Plan).
This office has concluded its investigation
of the Plan and of your activities as its trustee. Based on
the facts gathered during this investigation, and subject to
the possibility that additional information may lead us to
revise our views, it appears that, as trustee, you may have
breached your fiduciary obligations to the Plan and have
violated several provisions of ERISA. The purpose of this
letter is to advise you of our findings.
As we understand the facts, many of which
you provided to this office during the course of our
investigation, on December 1, 2005, the Plan loaned $500 to
the XYZ Company, which is the plan sponsor and thus a party in
interest to the Plan within the meaning of ERISA section
3(14). This loan was repaid on December 15, 2005. It is our
view that this loan violates ERISA section 406(a)(1)(B), which
provides:
406(a)(1) |
A fiduciary with respect to a
plan shall not cause the plan to engage in a transaction, if
he knows or should know that such transaction constitutes a
direct or indirect- |
|
(B) lending of money or other extension
of credit between the plan and a party in interest; |
In addition our investigation has disclosed
that (outline additional violations as above).
[With the exception of the reporting
violations noted above,](12) We have concluded that further
action is not warranted at this time. You are cautioned,
however, to refrain from such conduct in the future.
You are further cautioned that this notice
addresses only the issues described above. You must be aware
that the responsibility for the acceptance or rejection of any
Annual Report (Form 5500) or any part thereof is delegated to
the EBSA Office of the Chief Accountant (OCA). [The final
decision whether the reporting violations described above have
been adequately corrected will be made by the OCA pursuant to
the federal regulations set forth at 29 C.F.R. 2570.61 et seq.
Accordingly, the reporting issues will be referred to the OCA for whatever action they deem appropriate.](13)
You must understand that the Department's
decision is binding on the Department only and only concerns
the matters discussed above. Any other individual or
governmental agency remains free to take whatever action it
may deem appropriate.
[Further, as you may be aware, Congress, in
enacting ERISA, added Section 4975 to the Internal Revenue
Code of 1954, which imposes an excise tax on disqualified
persons (generally, the same as parties in interest under
Title I of ERISA) who engage in prohibited transactions with
employee retirement benefit plans. In general, this excise
tax, which is administered and enforced by the Internal
Revenue Service, is applicable in two steps - a first
level tax equal to fifteen percent of the amount involved in the
transaction for each taxable year during which the transaction
is outstanding, and a second level tax, equal to 100 percent
of the amount involved, if the transaction is not corrected.
The excise tax is paid concurrently with the filing of a Form
5330 (Form and Instructions enclosed).
Please also be advised that pursuant to
section 3003(c) of ERISA, 29 U.S.C. section 1203(c), the
Secretary of Labor is required to transmit to the Secretary of
the Treasury information indicating that a prohibited
transaction has occurred. Accordingly, this matter will be
referred to the Internal Revenue Service.](15)
We hope this letter will be helpful to you
in the execution of your fiduciary duties.
Sincerely,
Regional Director
Enclosures: |
Explanation sheet on Form 5330 |
Form 5330 |
Instructions for Form 5330 |
SBREFA Notice(11) |
(Figure 11)
No VC Letter/Referral to IRS
This closing letter should not be used in a 502(l) or 502(i)
situation
[heading]
Dear :
The Department of Labor (the Department)
has responsibility for administration and enforcement of Title
I of the Employee Retirement Income Security Act of 1974.
Title I establishes standards governing the operation of
employee benefit plans such as the XYZ Plan (the Plan).
This office has concluded its investigation
of the Plan and of your activities as its trustee. Based on
the facts gathered during this investigation it appears that,
as trustee, you may have breached your fiduciary obligations
to the Plan and have violated several provisions of ERISA. The
purpose of this letter is to advise you of the nature of the
violations we believe have been committed.
As we understand the facts, many of which
you provided to this office during the course of our
investigation, on December 1, 2005, the Plan loaned $25,000 to
the XYZ Company which is the plan sponsor and a party in
interest to the Plan within the meaning of ERISA section
3(14). This loan is secured by real property, bears an
interest rate of 15%, and is being repaid in $500 monthly
installments. It is our view that this loan violates ERISA
section 406(a)(1)(B), which provides:
406(a)(1) |
A fiduciary with respect to a
plan shall not cause the plan to engage in a transaction, if
he knows or should know that such transaction constitutes a
direct or indirect- |
|
(B) lending of money or other extension
of credit between the plan and a party in interest; |
[With the exception of the reporting
violations noted above,](12) We have concluded that further
action by the Department is not warranted at this time;
however, you are cautioned to refrain from such conduct in the
future.
You are further cautioned that this notice
addresses only the issues described above. You must be aware
that the responsibility for the acceptance or rejection of any
Annual Report (Form 5500) or any part thereof is delegated to
the EBSA Office of the Chief Accountant (OCA). [The final
decision whether the reporting violations described above have
been adequately corrected will be made by the OCA pursuant to
the federal regulations set forth at 29 C.F.R. 2570.61 et seq.
Accordingly, the reporting issues will be referred to the OCA for whatever action they deem appropriate.](13)
As you may be aware, Congress, in enacting
ERISA, added Section 4975 to the Internal Revenue Code of
1954, which imposes an excise tax on disqualified persons
(generally, the same as parties in interest under Title I of
ERISA) who engage in prohibited transactions with employee
retirement benefit plans. In general, this excise tax, which
is administered and enforced by the Internal Revenue Service,
is applicable in two steps - a first level tax equal to fifteen
percent of the amount involved in the transaction for
each taxable year during which the transaction is outstanding
and a second level tax equal to 100 percent of the amount
involved if the transaction is not corrected. The excise tax
is paid concurrently with the filing of a Form 5330 (Form and
Instructions enclosed).(16)
Pursuant to Section 3003(c) of ERISA, 29
U.S.C. §1203(c), the Secretary of Labor is required to
transmit to the Secretary of Treasury information indicating
that a prohibited transaction has occurred. Accordingly, this
matter will be referred to the Internal Revenue Service.
Sincerely,
Regional Director
Enclosures: |
Explanation sheet on Form 5330 |
Form 5330 |
Instructions for Form 5330 |
SBREFA Notice(11) |
(Figure 12)
Compliance Not Achieved
[heading]
Dear :
I have received your letter-dated
____________________ concerning the ____________________ Plan (the Plan) that was
in response to my letter dated ____________________.
As I pointed out in my previous letter, the
Department of Labor (the Department) has responsibility for
the enforcement of Title I of the Employee Retirement Income
Security Act of 1974. Title I establishes standards governing
the operation of employee benefit plans.
As I noted, this office has concluded its
investigation of the Plan and of your activities as its
trustee after (date). Based on the facts gathered during that
investigation it appears that, as a trustee, you have violated
your fiduciary obligations to the Plan and have violated
several provisions of ERISA.
Specifically, on December 1, 2005, you
caused the Plan to loan $25,000 to the XYZ Company, which is
the plan sponsor and a party in interest within the meaning of
ERISA section 3(14). This loan is secured by real property,
bears an interest rate of 15%, and is being repaid in $500
monthly installments.
In my view, this loan constitutes a
violation of ERISA section 406(a)(1)(B) which provides:
406(a)(1) |
A fiduciary with respect to a
plan shall not cause the plan to engage in a transaction, if
he knows or should know that such transaction constitutes a
direct or indirect- |
|
(B) lending of money or other extension
of credit between the plan and a party in interest; |
In addition, as I noted, our investigation
disclosed that (outline additional violations as above).
In your letter dated ____________________, you denied
that the facts concerning the December 1, 2005 loan were true
(you confirmed that the facts concerning the December 1, 2005 loan were true, but denied that those facts constitute a
violation of ERISA)(18) as stated in my previous letter.
I have considered the information provided
by you (and have conducted additional investigation with
regard to the new facts presented) but remain of the view that
the Department's original position is correct. Therefore, we
continue to believe that you have violated, and remain in
violation of; the above cited fiduciary provisions of ERISA.
Despite your refusal to undertake the
corrective action we deem necessary, we have decided that
legal action by the Department will not be commenced at this
time. You are cautioned, however, that this decision only
addresses issues other than reporting violations. You must be
aware that the responsibility for the acceptance or rejection
of any Annual Report (Form 5500) or any part thereof is
delegated to the EBSA Office of the Chief Accountant (OCA).
[The final decision concerning reporting issues will be made
by the OCA pursuant to the federal regulations set forth at 29
C.F.R. 2570.61 et seq. Accordingly, the reporting issues
described above will be referred to the OCA for whatever action they deem appropriate.](13)
Suit by other parties including plan
fiduciaries, participants, or their beneficiaries remains
possible. Additionally, pursuant to section 504(a) of ERISA, I
am authorized to provide relevant information concerning the
findings and supporting documentation of our investigation to
any interested party. I am also authorized to provide such
information to other government agencies in a position to
undertake corrective action. Please understand that I will
provide such information, as I deem appropriate. Finally, our
decision not to bring any legal action at this time may be
reviewed in the future and the possibility of future legal
action remains.
[Further, as you may be aware, Congress, in
enacting ERISA, added Section 4975 to the Internal Revenue
Code of 1954, which imposes an excise tax on disqualified
persons (generally, the same as parties in interest under
Title I of ERISA) who engage in prohibited transactions with
employee retirement benefit plans. In general, this excise
tax, which is administered and enforced by the Internal
Revenue Service, is applicable in two steps - a first level
tax equal to
fifteen percent of the amount involved in the
transaction for each taxable year during which the transaction
is outstanding and a second level tax, equal to 100 percent of
the amount involved if the transaction is not corrected. The
excise tax is paid concurrently with the filing of a Form 5330
(Form and Instructions enclosed).(17)
Please also be advised that pursuant to
section 3003(c) of ERISA, 29 U.S.C. section 1203(c), the
Secretary of Labor is required to transmit to the Secretary of
the Treasury information indicating that a prohibited
transaction has occurred. Accordingly, this matter will be
referred to the Internal Revenue Service.]
Sincerely,
Regional Director
Enclosures: |
Explanation sheet on Form 5330 |
Form 5330 |
Instructions for Form 5330 |
SBREFA Notice(11) |
If the correction involves a repayment period, the RO must use either PTE 94-17 or obtain a consent order.
ERISA Section 406(a)(2) violation was not
included in the publication of the final exemption; therefore,
a correction notice dated 11/28/94 (59 FR 60837) was issued.
Settlements may still be approved for cases
not otherwise meeting voluntary compliance guidelines, after
RO consultation with OE. See paragraphs 10 b and c below.
In certain limited situations, other
methods may be appropriate, depending on the size of the plan
and assurances by the applicant that all interested plan
participants will be notified through their proposed notice
methodology. For example, in large plans a number of methods
may be used, often in combination, including electronic mail,
posting notices where other important employee messages are
posted, and publication in the employee newsletter. It is the
applicant’s responsibility to establish that notice was
provided to all interested parties.
In situations where 502(i) issues are
involved, this paragraph should be revised as follows:
[If you take proper corrective action the
Department will not bring a lawsuit with regard to these
issues, but may assess a civil penalty under section 502(i) of
ERISA. Furthermore, section 502(l)...]
The Department may, in its sole
discretion, waive or reduce the penalty if it determines in
writing that the fiduciary or knowing participant in the
breach acted reasonably and in good faith, or if it is
reasonable to expect that the fiduciary or knowing participant
will not be able to restore all losses to the plan without
severe financial hardship unless such waiver or reduction is
granted. The Department may, in its sole discretion, agree to
such a waiver or reduction in conjunction with entering into a
settlement agreement. The procedure for applying for a waiver
or reduction of the civil penalty is set forth in an interim
regulation promulgated by the Department at 29 C.F.R. 2570.80 to 2570.88. A petition
for a waiver or reduction of the civil penalty should be
directed to the Area Office. The Department has also issued a
proposed regulation regarding implementation of the civil
penalty at 29 C.F.R. 2560.5021-1.
Mr. Berger no longer works for DOL. For questions, please call 202.693.8564.
Section 102 of Reorganization Plan No. 4
of 1978 (43 FR 47713, October 17, 1978) generally transferred
the authority of the Secretary of the Treasury to issue
administrative exemptions under section 4975(c)(2) of the Code
to the Secretary of Labor.
The Department notes that the exemption
will not affect the liability of any person for the civil
penalties imposed on applicable recovery amounts under section
502(l) of ERISA.
Revise closing letter when the 502(l) penalty has been paid as follows: In addition, in response to my notice of assessment letter of ERISA Section 502(l) civil penalty letter dated _________, you have indicated by letter dated __________ that the required payment was made to the department. Revise closing letter with the 502(l) penalty letter has not been paid as follows: . . .that you have not made the required payment and therefore we are referring this matter for debt collection.
Include when subject of investigation is a plan, or other business entity, with fewer than 100 participants or employees and when the notice has not been provided previously.
This introduction is to be used when reporting violations were identified during the investigation.
To be used when appropriate.
Include language in brackets when addressee is or represents the disqualified person involved in the prohibited transaction.
Include language in brackets when addressee is or represents the disqualified person involved in the prohibited transaction. See attachments to Figure 3 for material to be enclosed with this letter.
Include language in brackets when addressee is or represents the disqualified person involved in the prohibited transaction. See attachments to Figure 6 for materials to be enclosed with this letter.
Include language in brackets when the addressee is, or represents the disqualified person involved in the prohibited transaction. See attachments to Figure 8 for materials to be disclosed with this letter.
The language in parentheses should be used in situations where the facts have been admitted but their legal significance denied. If only the facts are disputed, this sentence should be omitted.
|