Targeting And Limited Reviews

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1. Purpose. The purpose of this chapter is to provide guidance in the use of targeting techniques and in the handling of limited review cases (Program 53). Targeting is the process whereby the limited investigative resources of EBSA are directed toward those plans and service providers with the highest potential for abuse, consistent with agency goals, objectives and priorities. Limited review cases are expedited inquiries into one or more specific facets of a plan or service provider's operation in order to determine quickly whether a violation exists and further investigation is merited or whether the matter should be closed.

2. Criteria. Enforcement strategies, annual operating plans, and National Office policy statements will provide direction to targeting efforts and may, from time to time, emphasize the review and investigation of financial institutions, service providers, specific sizes and types of plans, types of investments, or other specific matters. All targeting efforts will reflect, and be consistent with, such direction. Additionally, RO initiated targeting efforts which supplement national enforcement strategies, annual operating plans, and policy guidance should be considered for implementation by field offices. Supplemental efforts may reflect such factors as local economic conditions, geographical coverage within an RO/DO jurisdiction, and specialized plan types.

3. Targeting

1. Sources for Potential Limited Review Cases.

   1. Computer generated compilations of selected employee benefit plans or service providers derived from reports filed with EBSA.

   2. Information derived from detailed review and analysis of annual reports, supporting financial statements, schedules, exemption application files, ERISA section 502 complaints, and other internal EBSA sources.

   3. Information concerning employee benefit plans or service providers derived from other governmental agencies such as the IRS, the SEC, and state insurance agencies.

   4. Information concerning employee benefit plans or service providers derived from non-governmental sources such as newspapers, industry journals and magazines, or leads from knowledgeable parties.

   5. Information received as a result of complaints from participants, fiduciaries, informants, or other sources in the community, other than allegations of acts against a participant or beneficiary for exercising any right to which he/she is entitled under the provisions of an employee benefit plan, or interfering with the attainment of any right to which the participant may become entitled, which should be handled as described in Chapter 43.

   6. Compilations of selected employee benefit plans or service providers derived by using combinations of the sources listed in (1) through (5) above.

2. Methods for Using Sources to Identify Limited Review Targets.

   1. An entire compilation of employee benefit plans or service providers can be targeted for limited review without further refinement of the initial compilation. Generally, this method will be used when the compilation itself is small. For example, an RO may request a printout from the National Office of all exemption applications granted, denied or withdrawn for plans having at least fifty (50) participants located within that RO's jurisdiction. Such a compilation would probably be small in number and, generally, would not require any additional analysis to afford a reasonably good basis for limited review cases.

   2. More sizeable compilations can be refined through the use of "inquiry letters" (Figure 1) whereby certain additional information is obtained from employee benefit plan officials prior to opening a limited review case. Such inquiry letters, however, should be used with caution and only in a manner consistent with the guidelines in paragraph 4 below. Each RO using inquiry letters will review responses to such letters in order to determine which employee benefit plans appear to merit further review, either by opening a limited review case or through the use of additional case development efforts.

   3. Telephonic contacts may also be used to assist in refining compilations in order to select specific cases for limited review. Such contacts may be used to further refine large compilations after receipt and analysis of "inquiry letters."

4. Inquiry Letters. Inquiry letters are often a very effective initial contact with an employee benefit plan or service provider.

1. Standardized Inquiry Letters. Standardized inquiry letters must be used with extreme caution because of the strict requirements of the Paperwork Reduction Act (PRA). The PRA prohibits the use of certain standardized letter requests for information without prior approval of the Office of Management and Budget. Inquiry letters containing requests for identical information may not be sent to more than 9 persons unless individual investigations have already been opened. Any standardized inquiry letter sent by the RO must be reviewed by DFO before it is sent.

2. Telephone Calls. For the purpose of PRA, telephone calls are the same as inquiry letters. Follow-up calls should be made only after an initial inquiry letter is sent.

3. Filing Inquiry Letters. Where the inquiry letters merely request data in support of particular information contained in a filing with the Secretary, such as a Form 5500, that has been the subject of EBSA review, the inquiry letter may request the creation of documents that contain such supporting data. For example, if an RO obtained a computer printout of the 100 employee benefit plans within its jurisdiction with the largest percentage of assets invested in real estate (as derived from the most recently available Forms 5500), that RO could prepare and distribute an inquiry letter to those 100 plans inquiring into and requesting an explanation of the specific nature of each plan's real estate investments after individual investigations have been opened for these plans (see Figure 1). The RO could not, however, request the creation of documents beyond that necessary to explain the entry on the Form 5500.

4. Detailed Inquiry Letters. Detailed inquiry letters may be used to request information beyond that which is necessary to support information required to be filed with the Secretary under Title I of ERISA only after an investigation has been opened. Such detailed inquiry letters may not request the creation of documents, but rather may request the production of existing documents. Figure 2 is an example of a detailed inquiry letter and requests information beyond that which is necessary to support an entry in a plan's Form 5500.

5. Internally (EBSA) Obtained Information. Each field office will maintain lines of access to information maintained in the National Office, such as filed reports and attachments, exemption application files, advisory opinion files, and Solicitor of Labor information.

6. Routinely Available External Information. The RO should, on a regular basis, initiate and maintain contacts with other governmental agencies (e.g., OLMS, OIG/OLR, IRS, FBI, SEC, U.S. Attorney's offices, state insurance agencies, and other appropriate agencies). The RO/DO also should develop and maintain current listings indicating the locations and responsible officials of important sources of records (e.g., federal and state court records, real estate and UCC filings, assessors' offices, and specialized libraries). Moreover, each RO/DO should routinely review media coverage compiled by its local Office of Public Information or reported in newspapers and industry journals, seeking to identify actual or potential items of enforcement concern.

7. Relationship of Targeting to Limited Review Cases. In making compilations for targeting purposes, in preparing inquiry letters, and in related case development work, Investigators/Auditors will normally charge their time to case development on EBSA Form 214. Once the targeting process has identified a potential target and the RO/DO decides to investigate that particular target, a limited review case should be opened. In those instances where the targeting process has uncovered a fiduciary issue, the RO/DO should open a fiduciary case (Program 48). It should be noted that, at the targeting stage, no commitment has been made under ERISA section 504 to conduct a limited review or fiduciary case.

8. Contact Records for Targeting/Case Development Efforts. For all contacts made under targeting/case development, such as telephone calls, participant interviews, or inquiry letters, a record must be maintained in the RO/DO. The record of each contact shall indicate the date of contact and the party contacted, summarize what occurred, indicate any action taken by the RO/DO (i.e., no action taken, case opened, etc.), and contain sufficient back-up documentation (e.g., annual reports, financial statements, correspondence) to allow for a subsequent statute of limitations analysis.

9. Opening Limited Review Cases. The case opening form should describe briefly the reasons for opening the case as well as any materials reviewed prior to the case opening, and the dates of such review. The summary section of this form will contain a description of the pertinent facts that form the basis for opening an investigation, including an explanation of the nature of the complaint or other information received; the ERISA related issues raised by such complaint or information; and the specific ERISA sections potentially involved. The summary information provided on the case opening form should include a statement setting forth the results of the preparer's search of the global indices. Any materials reviewed which constituted the basis for the case opening should be identified and dated.

10. Limited Review Cases (Program 53). Limited review cases will be undertaken to inquire into one or more specific issues or aspects of plan or service provider operation. The purpose of such an inquiry is to explore one or more specified matters quickly in order to determine whether a complete fiduciary investigation is warranted. Therefore, an Investigator/Auditor will not be expected to examine every aspect of plan/service provider operation, but only those matters, which formed the basis for the original case opening. The sole objective of a Program 53 case is to look at one or more issues and to determine whether to convert the case to a Program 48 case or to conclude the inquiry as quickly as possible.

11. Additional Investigative Steps when a Plan Sponsor is in Bankruptcy. Upon learning of a current or pending bankruptcy of the plan sponsor or the plan fiduciary the following additional investigative steps should be taken:

• Contact the Bankruptcy Court and obtain the Bankruptcy case number. This information can also be obtained from the Pacer internet access system.

• Once the Bankruptcy case number is obtained, take the necessary steps to obtain an up-to-date Docket, Petition, Schedules, Statement of Financial Affairs, list of all the creditors and any other information which may assist the Investigator/Auditor in the investigation of the plan sponsor or the plan’s fiduciaries.

• Check the bankruptcy filing for the deadline for filing proof of claims (Bar Date) and the date, time and place of the Meeting of Creditors (341 meeting). This information should be recorded pursuant to case management procedures.

• When reviewing the Bankruptcy filing, the Investigator/Auditor should determine if the plan is listed as a creditor to the bankruptcy estate and if the debt listed is consistent with the amount of any delinquent contributions.

The goal of an investigation when a bankruptcy is involved is to obtain as much information as possible to enable the Investigator/Auditor to determine if a fiduciary breach has occurred. The Investigator/Auditor, in consultation with his/her Supervisor, should determine whether the RSOL should be informed of the pending bankruptcy proceedings. At all times the Investigator/Auditor should be mindful of the time frames of the bankruptcy proceeding and the time periods available to file a proof of claim.

12. Limited Review Cases Involving Health Plans. Part 7 of ERISA was amended by four separate statutes: the Health Insurance Portability and Accountability Act of 1996 (HIPAA); the Mental Health Parity Act of 1996 (MHPA); the Newborns’ and Mothers’ Health Protection Act of 1996 (Newborns’ Act); and the Women’s Health and Cancer Rights Act of 1998 (WHCRA). During the course of an investigation involving an ERISA-covered health plan, Investigators/Auditors will ordinarily determine whether a plan is in compliance with these statutes. An investigative guide to assist in this effort is found at Figure 3. If the investigator finds that a large firm sponsors several covered group health plans, a compliance review for each of the plans should be conducted.

13. Written Investigative Plan, Guidelines, and IRS Checksheets. A written investigative plan may, at the discretion of the Supervisor, be required for any given limited review case; however, investigative plans are not routinely required for Program 53 cases.

Sample investigative guidelines which can be used in a limited review case involving an employee benefit plan as the direct subject of review are set forth at Figure 4. Also consult Chapter 48 for other similar investigative guidelines. ROs may create other investigative guidelines for use in limited review cases. Routinely, reporting and disclosure and bonding are to be reviewed in employee benefit plan limited review cases. Additionally, the IRS checksheet should be completed in limited review cases.

14. Limited Review Case Dispositions (Program 53)

1. No Violation(s) Found. In those instances where the limited review case identifies no violations, a closing Checksheet ROI will be prepared. Such ROIs will include sufficient narrative detail to describe the basis for the review, the area(s) reviewed, the documents reviewed, and the reason(s) for concluding that no violation(s) exists. See Tabs M, N, and O for sample closing ROI formats. Employee benefit plan officials or appropriate officials of service providers will be informed of the results by letter. See Figure 5 for the pattern closing letter.

2. Violation(s) Found: Bonding, Reporting and Disclosure, Administrative Practices, Corrected Prohibited Transaction(s). In those instances where the limited review case identifies violations in areas such as bonding, reporting and disclosure, improper administrative practices of a de minimis nature, or prohibited transaction(s) already corrected, the case should generally remain as a Program 53. The same closing ROI form used in no violation cases can be used provided that corrective action(s) taken are documented in the case file. Closing letters will be drafted in a manner which sufficiently details the violation(s) found and corrective action(s) taken, or to be taken.
   In instances when reporting violations pursuant to part 1 of ERISA are discovered, and there are no other ERISA violations, the deficient report violation should be included in a voluntary compliance letter. The voluntary compliance letter should require the plan to correct the violation identified. If the plan fails to correct the deficient report violation as requested in the voluntary compliance letter and there are no other unresolved issues involved in the investigation which would mandate a referral for civil litigation, or in situations where there are unresolved issues but a decision has been made not to pursue the investigation, the investigation should be forwarded to OCA. The Regional Office may close the investigation at the time of transmittal. 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.  A closing letter, which details the reporting violation and contains the following notification, should be issued to the Plan Administrator:

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.

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.

3. Violations Found: Part 7 Violations. Fiduciaries are to be advised of findings of part 7 violations in writing. Figure 7 provides pattern Voluntary Compliance Letter language for use where no violations other than part 7 violations were found. Generally, violations under part 7 do not give rise to per se violations of part 4. Assertions of fiduciary misconduct under ERISA section 404 must stand on their own specific elements of proof.

4. Apparent Violations Found: Conversion to Program 48. If evidence of violations is uncovered, the Investigator/Auditor will notify his/her supervisor and consideration will be given to converting the investigation to a Program 48 case. An ROI is not required for the conversion. The conversion should be done in accordance with case management requirements. Special care should be given to ascertaining a reasonable administrative statute control date. If any substantial delay in conducting an on-site review in the Program 48 investigation is foreseen, the subject of the case should be advised in writing (see Figure 6).

5. Apparent Criminal Violations Found. Whenever the limited review case uncovers evidence of possible criminal violation(s), the assigned Investigator/Auditor must apprise the group supervisor at the earliest possible time. Normally, the civil case will proceed and no investigation of the criminal case will be performed until the RD has decided whether and by whom such criminal investigation(s) will be conducted.

6. Apparent Violations of Participant Rights. If the limited review discloses possible ERISA section 510 violations involving acts against a participant or beneficiary for exercising any right to which he/she is entitled under the provisions of an employee benefit plan, or interfering whth the attainment of any right to which the participant may become entitled, a Program 43 case will be opened immediately.

7. Prohibited Persons. Whenever the limited review investigation indicates that a person who is barred from serving as an employee benefit plan fiduciary or service provider because he or she has been convicted of certain crimes (see section 411 of ERISA) is acting in such a capacity, a Program 47 case will be opened.

15. General Investigative Considerations Under Limited Review Cases

1. Generally, other than stating that the purpose of the limited review is to determine whether a violation of Title I of ERISA has occurred or is about to occur, the Department has adopted the policy of not informing plan officials or others as to the basis of its investigation.

2. Normal operating requirements as reflected elsewhere in the Manual for conducting and documenting interviews, receiving and maintaining records, and similar functions are to be followed. However, the scope of records reviewed, interviews conducted, and third-party verifications made will be substantially less under limited review cases than under fiduciary cases.

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 3^rd 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 less 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 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 proposed corrective action in a timely manner to protect the business’ interests.

(Figure 1)

Sample Inquiry Letter

Plan Administrator
XYZ Corporation
234 N. Fairfield Street
Somewhere, Illinois 12345

Re: XYZ Plan

Dear Sir:

The Employee Benefits Security Administration is undertaking an inquiry of selected private employee benefit plans in order to determine whether those plans are in compliance with Title I of the Employee Retirement Income Security Act of 1974 (ERISA). In connection with this inquiry, we request that, within the next fifteen days, you send copies of the materials listed below to: [EBSA field office address]

The requested items are as follows:

1. The most recent financial statement for the XYZ Plan;

2. The latest Form 5500 (together with any attachments or enclosures) for the plan;

3. Data supporting line number ____________________ of the plan's [Year] Form 5500 which indicates that $____________________ of plan assets are invested in real estate;

4. Data supporting line number ____________________ of the plan's [Year] Form 5500, which indicates total plan assets at the end of the reporting year were $____________________.

If you have any questions, please feel free to call (200) 321-1234 or write to the above address.

Thank you in advance for your cooperation.

Sincerely,

Enclosure

(Figure 2)

Sample Detailed Inquiry Letter

Plan Administrator
XYZ Corporation
234 N. Fairfield Street
Somewhere, Illinois 12345

Re: XYZ Plan

Dear Sir:

The Department of Labor 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 the (the Plan).

The Plan is scheduled for review by this office. Investigative authority is vested in the Secretary of Labor by Section 504 of ERISA, 29 U.S.C. §1134, which states in part: "The Secretary shall have the power, in order to determine whether any person has violated or is about to violate any provision of this title or any regulation or order thereunder ... to make an investigation, and in connection therewith to require the submission of reports, books, and records, and the filing of data in support of any information required to be filed with the Secretary under this title ...."

We have found in the past that submission of relevant documents to our office prior to the inception of on-site field investigation can lessen the time subsequently spent with, and the administrative burden placed on, plan and corporate officials, and may eliminate the need for an on-site visit entirely. To that end, we ask that you submit to this office within the next ten working days the documentation indicated on the enclosed checklist with respect to the above-mentioned plan.

Thank you in advance for your cooperation. Should you have any questions, feel free to contact Investigator/Auditor ____________________ at 200.321.1234.

Sincerely,

Enclosures

Copies Of Items Checked Off Below Should Be Submitted As Indicated In The Cover Letter

(Figure 3)

Investigative Guide for HIPAA and Other Health Care-Related Statutes Added to Part 7 of ERISA.

(Figure 4)

Investigation Guidelines
Employee Benefit Plans

I. Background

A. Plan sponsor

Name: ________________________________________________

Address: _______________________________________________

    _______________________________________________

Nature of business: ______________________________________

B. Type of plan:

C. Other plans maintained by plan sponsor

D. Number of participants

Active ______________ Total Assets $________________

Retired _____________ Total Income $________________

E. Trustee(s)

H. Funding

-- Trust

Funds are accumulated/held by:
Disbursement authority held by:

-- Self insured

Funds are accumulated/held by:
Disbursement authority held by:

-- Fully insured

Insurance company

-- Other (specify)

II. Investments/Assets/Expenses:

Source:  5500     Financial statements     Other (Obtain copy whenever possible)

A. Asset Analysis - As of _______________________ (should be most current year)

B. Cash Position (Average)

1. Total expenses FYE: _______________

2. (#1 / 12) = Average monthly expenses ______________________

3. Non-interest bearing Cash ____________________

(per the balance sheet) _______________

4. If #3 is greater than 200% of #2, explain in narrative Section VI.

C. Return On Investments

1. Total assets beginning of year _____________________

2. Investment income/earnings (+-) realized gains/(losses) ____________________

3. Return on Investments (#2 / #1) ____________________

4. Unrealized Appreciation (depreciation) of assets ____________________

5. Does rate of return appear reasonable? Yes     No

If no, explain in narrative Section VI.

D. Expense Analysis:

1. Disbursement for benefits $____________________

2. Administrative expense $____________________

3. Other $____________________

4. Cost per participant (#2+#3)/(# of P's) $____________________ 

E. Contributions

-- Contributory $____________________

-- Non-contributory $____________________

-- Other (specify) $____________________

-- Non-cash contributions (specify) $____________________

1. Total contribution FYE: _________________

2. #1/12 = monthly contribution _________________

3. Balance sheet

Contribution balance: _____________________

4. If balance in line 3 is 150% greater than line 2

is there a delinquency problem?

Explain in narrative Section VI.

5. Contributions are sent to:

Bank (name) ________________________________________________

Insurance (name) _____________________________________________

Plan Office (name) ____________________________________________

Union Office (name) ___________________________________________

Other (name) _________________________________________________

F. Does the plan hold any employer securities? (Section 407(d))

No
Yes Explain in narrative Section VI.

(How acquired? FMV? etc.)

G. Does the plan hold any employer real property?
(Section 407(d))

No
Yes Explain in narrative Section VI.

How acquired? FMV? Location(s)? etc.)

H. Has the plan made loans/mortgages to:

• participants

• beneficiaries

• plan sponsor

• party in interest

• fiduciary

• other (specify)

I. If any item in H is checked get details. Including (as appropriate)

• Name of borrower

• Relationship to Plan

• Amount

• Date

• Interest rate

• Repayment schedule

• Due date

• Type of loan

• Security

• Written agreement

• Percentage of plan assets

• Are payment of interest and principle up to date?

• Current balance

• Does plan document permit loans? (Available to all participants?)

J. Records Reviewed

• Plan/Trust document

• Summary Plan Description (SPD)

• Form 5500 (obtain copy for file) and schedules

• IRS Determination

• Cash receipts

• Cash disbursements

• Investment policies

• Investment portfolio (including most current)

• Contribution reports

• Accountants opinion (obtain copy for file)

• Minutes of trustee meetings

• Form 5330 if filed

• Summary Annual Reports (SAR)

• Participant account balances

• Other (specify)

K. Has the plan applied for an exemption?

No
Yes (explain)

III. Reporting/Disclosure

A. Has the plan filed/distributed:

• Form 5500

• SAR

• SPD (copy for file)

• Amendments (if adopted)

• COBRA notifications for welfare plans

B. Are reports prepared/distributed on a timely basis?

No
Yes (explain)

IV. Bonding

A. Is plan covered by bonding provisions? (Section 412)

No
Yes (explain)

B. Does bond meet requirements?

No
Yes (explain)

(Figure 5)

Pattern Closing Letter - No Violations

Dear (Plan Administrator or Fiduciary):

The Department of Labor has recently conducted a limited review involving the (name of the plan) pursuant to the Employee Retirement Income Security Act of 1974 (ERISA). This is to advise you that our limited review is now concluded and 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). [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. ⁽¹⁾

(We appreciate the cooperation you and members of your staff have extended to us.)

Sincerely,

(Figure 6)

Pattern Letter - Further Investigation To Be Scheduled At A Later Date

Dear:

This letter is sent as written confirmation of the fact that the Employee Benefits Security Administration is currently reviewing the ____________________ pursuant to the Employee Retirement Income Security Act of 1974 (ERISA). This is to advise you that personnel from EBSA will return for further on-site examination of plan records (contact you in regard to additional information) at a later date. You may expect telephonic contact from my staff around ____________________ to make arrangements for this purpose.

Your cooperation in this matter is appreciated.

Sincerely,

(Figure 7)

Pattern Letter
Violations Of Part 7 Found

Board of Trustees
XXXXX Benefit Plan

RE: XXXX Benefit Plan
EIN/PN:

Dear Board Members:

The Department of Labor (the Department) has responsibility for administration and enforcement of Title I of the Employee Retirement Security Act of 1974 (ERISA). Title I establishes standards governing the operation of employee benefit plans such as the [name plan] (the Plan).

This office has concluded its investigation of the Plan and of your activities as Plan Administrator. 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 the Plan fails to meet certain requirements imposed by Title I, part 7 of ERISA relating to the health care statutes described therein.

The specific provisions of ERISA which we believe have been violated are described more fully below. 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.

1. Failure to comply with Certain HIPAA Preexisting Condition Exclusion Provisions

ERISA section 701 states:

… a group health plan … may, with respect to a participant or beneficiary, impose a preexisting condition exclusion if-

1. such exclusion relates to a condition (whether physical or mental), regardless of the cause of the condition, for which medical advice, diagnosis, care, or treatment was recommended or received within the 6-month period ending on the enrollment date;

2. such exclusion extends for a period not more than 12 months (or 18 months in the case of a late enrollee) after the enrollment date; and

3. the period of any such preexisting condition exclusion is reduced by the aggregate of the periods of creditable coverage (if any . . .) applicable to the participant or beneficiary as of the enrollment date.”

ERISA section 701(d) states:

1. “…a group health plan…may not impose any preexisting condition exclusion in the case of an individual who, as of the last day of the 30-day period beginning with the date of birth, is covered under creditable coverage-

2. may not impose any preexisting condition exclusion in the case of a child who is adopted or placed for adoption before attaining 18 years of age and who, as of the last day of the 30-day period beginning on the date of the adoption or placement for adoption, is covered under creditable coverage. The previous sentence shall not apply to coverage before the date of such adoption or placement for adoption.

3. may not impose any preexisting condition exclusion relating to pregnancy as a preexisting condition.”

The Department’s regulation section 29 CFR 2590.701-3(c) requires that a group health plan may not impose a preexisting condition exclusion with respect to a participant or dependent of the participant before notifying the participant or a dependent of the participant in writing of the existence and terms of any preexisting condition exclusion under the plan and the rights of individuals to demonstrate creditable coverage (and any applicable waiting or affiliation periods). Additionally, the general notice must include a description of the rights of the individual to demonstrate creditable coverage and must also include a description of the right of the individual to request a certificate from a plan or issuer, if necessary, and a statement that the current plan or issuer will assist in obtaining a certificate from any prior plan or issuer, if necessary.

After a plan receives evidence of creditable coverage, if the plan is still seeking to impose a preexisting condition exclusion with respect to an individual, the plan is required, under the Department’s regulation section 29 CFR 2590.701-5(d), to disclose to the individual in writing, its determination of any preexisting condition exclusion period that applies to the individual, and the basis for any such determination, including the source and substance of any information on which the plan or issuer relied. In addition, the plan or issuer is required to provide the individual with a written explanation of any appeal procedures established by the plan or the issuer, and with a reasonable opportunity to submit additional evidence of creditable coverage.

[Describe and analyze the Plan provisions which are in violation.]

2. Newborns’ and Mothers’ Health Protection Act

ERISA section 711(a) prohibits a group health plan from restricting benefits for any hospital length of stay in connection with a childbirth for the mother or newborn child to less than 48 hours for a normal vaginal delivery or 96 hours following a cesarean section.

[Describe and analyze plan provisions which are in violation.]

3. Failure to Comply with the Mental Health Parity Act

[Set forth the Plan’s mental health dollar limit provisions]

The limitation of benefits for mental illness through an annual dollar limitation is a violation of the Mental Health Parity Act (MHPA), specifically ERISA section 712(a)(2)(B), because there are no similar dollar limitations on general medical and surgical benefits under the Plan.

[If appropriate] Additionally, as the Plan’s benefits for mental illness include those for chemical dependency treatment, this provision impermissibly applies benefits for chemical dependency services against the mental health dollar limit, which constitutes a violation of ERISA section 712(a)(2)(B), and the Department’s regulation section 712(b)(4), Example 4.

4. Failure to Comply with the Women’s Health and Cancer Rights Act (WHCRA)

Under section 713(a), written notice of the availability of WHCRA’s coverage benefits is to be delivered to the participant and beneficiary upon enrollment (the enrollment notice), as well as annually thereafter (the annual notice).

The enrollment notice must describe the benefits that WHCRA requires the group health plan, and its insurance companies or HMOs, to cover. The enrollment notice must indicate that, in the case of a participant or beneficiary who is receiving benefits in connection with a mastectomy, coverage will be provided in a manner determined in consultation with the attending physician and the patient, for:

• all stages of reconstruction of the breast on which the mastectomy was performed;

• surgery and reconstruction of the other breast to produce a symmetrical appearance;

• prostheses; and

• treatment of physical complications of the mastectomy including lymphedemas.

The enrollment notice must also describe any deductibles and coinsurance limitations applicable to such coverage.

Although WHCRA does not require plans to use the same notice to fulfill the enrollment and annual notice requirements, plans may satisfy the annual notice requirement by using the enrollment notice and delivering it to participants on an annual basis.

Alternatively, the plan may provide a different notice that describes the four categories of coverage required and contains information on how to obtain a detailed description of the mastectomy-related benefits available under the plan. The Department of Labor publication Your Rights after a Mastectomy...The Women’s Health and Cancer Rights Act of 1998,  describes an annual notice.

There is no evidence that the Plan complies with WHCRA’s enrollment and annual notice requirements as set forth in ERISA section 713(a).

Conclusion

We have provided the foregoing statement of our views to help you evaluate your obligations under ERISA. Your failure to correct the violations may result in referral of this matter 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 participants or their beneficiaries.

If you take proper corrective action the Department will not bring a lawsuit with regard to these issues. 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, 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 violations described above.

Sincerely,

Regional Director

Enclosure (if applicable, include WHCRA book)

Footnotes

1. To be used when appropriate.

2. When the subject of the investigation is a plan, or other business entity, with fewer than 100 participants or employees and when the notice has not been provided previously.

3. To be used as appropriate.