Retirement Security Initiatives

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U.S. Department of Labor
Employee Benefits Security Administration
April 2008

The Labor Department's Employee Benefits Security Administration (EBSA) is committed to safeguarding employee contributions to 401(k) plans and health care plans by investigating situations in which employers improperly delay forwarding employee contributions to the appropriate funding vehicle or simply convert the contributions to other non-plan uses. Either or both scenarios may occur when the employer is having financial problems and turns to the plan as a source of financing.

Background

• Almost 80 percent of workers that were eligible to participate in a 401(k) plan in 2004 did so.

• The number of 401(k) plans has grown continually from 17,000 plans covering 7.5 million people in 1984 to an estimated 436,000 plans covering 54 million people, as of 2005.

• These plans have combined assets of about $2.4 trillion, as of 2005.

• The Labor Department’s national enforcement project reduces misuse of contributions made by workers to their 401(k) plans.

• The initiative is multi-faceted, including: conducting investigations into 401(k) misuse; issuing a regulation to shorten the time for transmitting contributions to a 401(k) plan; and launching an education campaign to inform retirement plan participants about their rights and ways to protect their pension.

401(k) Enforcement Initiative Results

• Through the second quarter of fiscal year 2008 (through March 31, 2008), a total of 466 civil investigations were closed - 414 with corrected violations.

• The Labor Department had monetary results of $6,742,936 nationwide through the second quarter of fiscal year 2008 under this project.

• For fiscal year 2007, 1,326 civil and criminal investigations were closed – 1,133 with corrected violations.

EBSA Enforcement Efforts

Civil

On March 20, 2008, in Chao v. American Air Tool Enterprises LLC, the U.S. Department of Labor obtained a consent judgment against American Air Tool Enterprises LLC, and Scott Saunders, trustee to the company’s 401(k) plan. The judgment requires the company and Saunders to restore $18,286.51 in employee contributions, plus interest to the company’s 401(k) plan. Saunders violated the Employee Retirement Income Security Act (ERISA) by failing to forward employee contributions to the plan. In addition to the restitution, the judgment obtained by the Department also orders the defendants to ensure that each of the plan’s participants receives his or her respective share of the restitution made to the plan.

On March 13, 2008, in Chao v. UltraCard Inc. et al, the U.S. Department of Labor obtained a consent judgment requiring UltraCard’s president, Daniel Kehoe to restore $33,829 in employee contributions and losses to the company’s 401(k) plan. The Kehoe and Ultracard violated ERISA by failing to forward employee contributions to the plan. In addition to restoring plan funds, the order permanently enjoins Kehoe from serving as a fiduciary to any ERISA-covered employee benefit plan.

On January 14, 1008, in Chao v. Verhoff, the U.S. Department of Labor obtained a consent judgment against John P. Verhoff and Aaron K. Gaynor, officers of Precise Mechanicals Inc. The judgment requires Verhoff and Gaynor to restore $10,065.25 in employee contributions and lost earnings to the company-sponsored 401(k) plan. Verhoff and Gaynor, fiduciaries of the plan, and president and vice president of the company respectively, violated the Employee Retirement Income Security Act when they failed to segregate and remit to the plan employee contributions that were deducted from workers’ paychecks.

On December 19, 2007, pursuant to a consent judgment and order, the U.S. Department of Labor obtained in Chao v. Albeo DesJardins Jr., A.J. DesJardins Roofing Co. Inc., and its owner/president, Albeo DesJardins Jr., were ordered to restore $32,700.83 to the company’s 401(k) plan. The company and DesJardins, who was also the plan’s trustee, violated ERISA by failing to forward employee contributions to the company’s 401(k) plan from September 2005, through December 2006. In addition to the restitution, the consent judgment and order also required DesJardins to liquidate the plan and distribute the plan's assets to participants and beneficiaries once restoration is made, and removes DesJardins from serving as a fiduciary to any ERISA-covered employee benefit plan.

On December 6, 2007, in Chao v. MED-XS, the U.S. Department of Labor obtained a consent order requiring Kevin A. Tenkku, president of MED-XS Solutions Inc., to pay $38,612.17 to the company’s 401(k) plan. Tenkku violated ERISA by failing to forward employee contributions and participant loan repayments to the company’s 401(k) plan during various periods beginning in June 2002. In addition to the restitution, the consent order and judgment also ordered Tenkku to liquidate the plan and distribute the plan's assets to participants and beneficiaries once restoration is made. Additionally, the consent order and judgment removes Tenkku from serving as a fiduciary to the plan.

On November 28, 2007, in Chao v. Edler, the U.S. Department of Labor obtained a default judgment against McFaul & Lyons Group LLC, and its chief executive officer, James Edler, trustee of the company’s plan. The order requires the company and Elder to restore $153,111 in losses and interest to the company’s 401(k) plan. Elder violated the Employee Retirement Income Security Act (ERISA) by failing to forward employee contributions and participant loan repayments to the plan. In addition to the restitution, the default judgment also appoints an independent fiduciary to manage the plan, removes Edler and the company as fiduciaries of the plan and permanently enjoins them from serving as trustees, fiduciaries, advisors or administrators to any ERISA-covered employee benefit plan.

On October 3, 2007, in Chao v. Patterson, the U.S. Department of Labor has obtained a consent order and judgment restoring more than $19,000 to the retirement plan of defunct Rundel Products, Inc. The consent order and judgment requires William Patterson and C. Dixon Rauch, owners and officers of the company as well as trustees of the company’s retirement plan, to restore $19,462 to the plan. Patterson and Rauch violated ERISA by failing to forward more than $15,000 in employee contributions to the plan. In addition to restoring plan funds, the order permanently enjoins Patterson and Rauch from serving as fiduciaries or trustees to any ERISA-covered employee benefit plan, and appoints an independent fiduciary to manage the plan and make distributions to affected former employees.

On September 25, 2007, in Chao v. ZHA Inc., the U.S. Department of Labor has obtained a consent judgment and order requiring that ZHA Inc. and company officials Richard Zipperly and Wendy Roby restore $100,817 to the company’s 401(k) plan. The defendants violated ERISA by failing to forward employee contributions to the plan. In addition to restoring plan funds, the order permanently enjoins Zipperly from serving as a fiduciary to any ERISA-covered employee benefit plan.

Criminal

On May 5, 2008, Ronald Dale Patterson, age 64, was sentenced to a 4-year deferred adjudication by the Harris County District Court in Texas. Patterson was previously indicted and on January 24, 2008, entered a plea of no contest to one count of Misapplication of Fiduciary Property. Patterson was the President of Ronnie’s Food Markets and Trustee of the Ronnie’s Food Markets Profit Sharing Plan (the “Plan”). Between the period of January 10, 2002 and May 3, 2003, Patterson misapplied plan assets totaling $37,990.43 from the Plan’s bank account by writing checks to himself and paying personal expenses.

On March 5, 2008, in United States District Court, Northern District of Illinois, Eastern Division, David Jacob pleaded guilty to stealing funds from an employee benefit plan, in violation of 18 USC 664. Jacobs was the owner, operator and President of Northwestern Plating Works, Inc. (“NPW”), located in Chicago, Illinois. NPW was in the business of metal finishing. From September 2001, to March 2005, Jacob withdrew money from the NPW Profit Sharing Plan (the Plan). In total, Jacob wrote 49 checks from the Plan’s account at Morgan Stanley, totaling $832,890.84. The checks ranged in amounts from $5,000 to $60,000. The checks were first deposited into Jacob’s personal bank account and then transferred to the NPW operating account. Jacob was the sole trustee of the Plan. NPW went out of business in August 2005.

On January 22, 2008, William B. Wofford was sentenced to 51 months imprisonment followed by36 months probation and ordered to pay restitution of $277,938. On August 24, 2007, William B. Wofford, age 47, was convicted by a jury trial in the United States District Court, Northern District of Texas of 10 counts of Theft or Embezzlement from an Employee Benefit Plan. Wofford was the owner of Premier Consulting, Inc., (Premier) that sponsored the Premier Employers Group 401(k) Plan. Premier was a company that was in the business of leasing employees back to the companies for which the employees worked. Companies that hired Premier would no longer employ their own workers. Instead, Premier would employ the workers, and the clients of Premier would then lease the employees back from Premier. One of the benefits Premier offered was a 401(k) plan, known as the Premier Employer’s Group 401(k) Plan. From April 2002 through October 2004, Wofford directly and indirectly borrowed, withdrew and used, for his own use and benefit and for the use and benefit of companies and entities in which he had a financial interest, over $300,000 from the Plan.

On November 16, 2007, Thomas E. Zimmer was sentenced in the United States District Court for the Northern District of Ohio, to 2 years of supervised probation, 6 months of home confinement and, fined $1,000 with a special assessment of $100. On October 3, 2007, Zimmer plead guilty to one count of theft or embezzlement from an employee benefit plan in violation of Title 18 USC 664. Zimmer was 60 % owner of Allied Construction Group, Inc. and plan administrator of the company's 401(k) Plan covering employees of the Company. During the period May 3, 2002 - January 31, 2003 Zimmer withheld $10,692 from the pay of employees as contributions to the Company 401(k) Plan, but, failed to remit these withholdings to the plan's custodian of assets. Instead, he deliberately chose to spend these funds held by the company for business or personal purposes.

On August 20, 2007, in the District Court for the County of Oakland in the State of Michigan, William G. Kennedy, President and owner of Kennedy Boring and Machinery of Novi, Michigan, and Trustee of its 401(k) Plan, plead guilty to embezzlement relating to his failure to forward employee contributions to the company’s 401(k) plan. From June 1, 2000 - December 31, 2002 Kennedy failed to forward $23,206. As a condition of the plea deal, Kennedy agreed to make full restitution of $23,206. Kennedy’s sentence is delayed pending payment of restitution. If all monies are not repaid in full, Kennedy could face up to 5 years in jail. The investigation was prosecuted by the Oakland County Prosecutor’s Office of Michigan.

Participant Contribution Regulation

The Department’s participant contribution regulation requires employers of all sizes to transmit employee contributions to pension plans as soon as they can be segregated, but in no case later than the 15th business day of the month immediately following the month in which the contribution is either withheld or received by the employer. The Department proposed an amendment to the participant contribution regulation to create a safe harbor rule under which participant contributions to small plans (with fewer than 100 participants) will be deemed to be made in compliance with the law if those amounts are deposited with small plans within seven business days of withholding or receipt. Pending the adoption of a final rule by the Department, EBSA will not assert a violation of ERISA regarding participant contributions where such contributions are deposited with a small plan within 7 business days. Because the final rule may change, periodically check www.dol.gov/ebsa for the publication of the final rule.

Voluntary Fiduciary Correction Program

EBSA adopted the Voluntary Fiduciary Correction Program (VFCP) to encourage employers and fiduciaries to comply with ERISA. This program allows plan officials to self correct certain violations and receive “no action” letters if they meet certain criteria. Most of the VFCP applications involve delinquent employee contributions. As VFCP applications continue to increase, fewer investigations involving these issues need to be conducted in order to correct violations. Since the VFCP was adopted on a permanent basis in March 2002, EBSA has received more than 5,300 applications and verified $439 million in corrections on behalf of plans and their participants.

Consumer Education

• The Department began a consumer education program simultaneously with its enforcement effort on employee contributions.

• The “Top Ten Warning Signs” were published on EBSA’s Web site to provide consumers with tips on indicators of potential 401(k) abuse.

• Several new publications were developed to assist individuals in learning about their rights and monitoring the safety of their retirement benefits. Some of the more popular include What You Should Know About Your Retirement Plan and A Look at 401(k) Plan Fees.

• These publications are available on EBSA’s Web site at www.dol.gov/ebsa or through EBSA’s toll free number at 1.866.444.EBSA (3272).

• If you have questions not answered in this fact sheet, contact EBSA through the toll-free number or electronically at www.askebsa.dol.gov.

This fact sheet has been developed by the U.S. Department of Labor, Employee Benefits Security Administration, Washington, DC 20210. It will be made available in alternate formats upon request: Voice phone: 202.693.8664; TTY: 202.501.3911. In addition, the information in this fact sheet constitutes a small entity compliance guide for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.