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U.S. Department of Labor
Employee Benefits Security Administration
October 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.
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Almost 80 percent of workers that
were eligible to participate in a 401(k) plan in 2004 did so.
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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.
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These plans have combined assets of
about $2.4 trillion, as of 2005.
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The Labor Department’s national
enforcement project reduces misuse of contributions made by workers to
their 401(k) plans.
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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.
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In fiscal year 2008, a total of
1,232 civil investigations were closed – 1,072 with corrected
violations.
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The Labor Department had monetary
results of $24,863,198 nationwide through fiscal year 2008 under this
project.
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For fiscal year 2007, 1,326 civil
and criminal investigations were closed – 1,133 with corrected
violations.
401(k) Initiative Cumulative
Statistics (as of 09/30/08) |
Fiscal Year |
Civil Cases Closed |
Civil Cases Closed With Violations |
Criminal Cases Closed |
Criminal Indictments |
Monetary Results |
1995* |
95 |
34 |
5 |
7 |
$1,320,308 |
1996 |
458 |
146 |
8 |
14 |
$8,039,957 |
1997 |
823 |
388 |
10 |
21 |
$28,176,814 |
1998 |
824 |
461 |
30 |
16 |
$13,989,075 |
1999 |
852 |
625 |
23 |
17 |
$19,366,568 |
2000 |
1,025 |
840 |
27 |
21 |
$27,882,270 |
2001 |
1,150 |
893 |
23 |
8 |
$28,828,131 |
2002 |
1,317 |
1,045 |
20 |
15 |
$42,833,078 |
2003 |
1,364 |
1,157 |
20 |
8 |
$135,528,157 |
2004 |
1,591 |
1,269 |
21 |
10 |
$31,636,501 |
2005 |
1,480 |
1,280 |
35 |
18 |
$42,808,668 |
2006 |
1,306 |
1,122 |
29 |
17 |
$36,566,477 |
2007 |
1,298 |
1,107 |
28 |
24 |
$51,294,250 |
2008 |
1,232 |
1,072 |
39 |
17 |
$24,863,198 |
*The first year that EBSA began to emphasize 401(k) abuse as a national enforcement initiative. |
Civil
On September 8, 2008, in Chao v. Timothy Glinke, the
U.S. Department of Labor obtained a consent judgment against Timothy
Glinke, president of Control Pak International, Inc. The judgment requires
Glinke to restore $19,165 in employee contributions plus interest to the
company’s 401(k) plan. The Department alleged that Glinke violated the
Employee Retirement Income Security Act (ERISA) by failing to timely remit
employee contributions to the 401(k) plan from December 2001 through July
2003.
On September 4, 2008, in Chao v. Gerard D. Conway, the
U.S. Department of Labor obtained a consent judgment against G. Conway
Inc. and corporate officers Gerard D. Conway and Robert Conway. The
judgment requires the defendants to repay $72,803 plus interest to the
company’s 401(k) plan. The Department alleged that the defendants
violated the Employee Retirement Income Security Act (ERISA) by failing to
remit employee contributions withheld from employees’ paychecks between
April 23, 2005, and May 12, 2007. Instead, the defendants allegedly used
the withheld employee contributions to satisfy the obligations of the
company. In addition, the judgment also orders the defendants to properly
distribute the assets of the plan to plan participants and beneficiaries,
and to terminate the plan. Gerard D. Conway also is permanently prohibited
from serving as a fiduciary to any ERISA-covered plan.
On June 26, 2008, in Chao v. Haik, the U.S. Department
of Labor obtained a consent judgment requiring two officers of defunct New
York City and Santa Monica, California-based textile companies American
Fabrics Co. and Beverly Trimming Co. to restore over $111,260 to the
companies’ 401(k) plan. The consent judgment orders plan trustees
Richard Haik and Mitchell Ostrover to restore to the plan $111,260 plus
lost opportunity costs owed to the plan. The defendants were also ordered
to appoint Jacqueline Carmichael of JM Pension Advisory Inc. as the plan’s
independent fiduciary responsible for plan management, termination of the
plan and distribution of its assets to eligible participants and
beneficiaries. In addition, the defendants are permanently barred from
serving as fiduciaries to any ERISA-covered plan. The Department alleged
that Haik and Ostrover violated ERISA by failing to remit to the plan
contributions and loan repayments deducted from employees’ paychecks
between January 2002 and December 2003.
On July 1, 2008, in Chao v. Sharon Scherkoske, the U.S.
Department of Labor obtained a consent judgment restoring more than
$25,000 owed to the Tana Corporation Retirement Savings Plan. The order
requires the company and plan fiduciary Scherkoske to repay $19,271 in
delinquent employee contributions plus lost opportunity costs to the plan.
The Department alleged that the company and Scherkoske violated the
Employee Retirement Income Security Act (ERISA) by failing to remit
employee contributions to the plan, instead using those contributions for
the company’s benefit.
Criminal
On September 9, 2008, Barry R. Stokes pled guilty to
twenty nine counts of embezzlement from employee benefit plans, one count
of mail fraud, two counts of wire fraud, six counts of money laundering
and four counts of criminal contempt of court in U. S. District Court for
the Middle District of Tennessee, Nashville Division. Stokes was president
and CEO of 1 Point Solutions, LLC, a third party administration firm
located in Dickson, Tennessee. 1 Point Solutions provided administration
services to 401(k) plans as well as other employer sponsored employee
benefit plans. As part of its services, 1 Point Solutions collected
employee contributions for client plans which were meant to be invested in
401(k) accounts of plan participants. Instead, Stokes used the plans'
funds for his personal and business purposes including his use of funds to
purchase an extensive Japanese art collection. The total amount of the
amount of funds Stokes embezzled exceeded $14 million.
On June 23, 2008, Christian D. McIntire, owner of
Atlantic Capital Management, Inc. (“Atlantic”) pled guilty in the
United States District Court for the Western District of North Carolina
Charlotte Division to a two count Information for embezzling assets of an
employee benefit fund and failing to disclose on his 2001 Federal tax
return approximately $60,850 in income. Atlantic was a third party
administrator (“TPA”) to several employer sponsored 401(k) plans in
the Charlotte, NC area. Atlantic collected contributions on behalf of the
plans and would then forward them to American Funds. The plan
contributions were then invested through American Funds. It was McIntire’s
scheme, in part, to request distributions from plan participant accounts
from American Funds without the knowledge of plan participants. American
Funds would then issue checks in the name of plan participants and mail
them to McIntire. McIntire would then deposit the checks into his or
Atlantic’s account and use the funds for Atlantic’s or his own
personal benefit.
On July 17, 2008 David Jacobs was sentenced to 46
months imprisonment, three years of supervised released and ordered to pay
court ordered restitution of $832,890 in United States District Court,
Northern District of Illinois, Eastern Division. Jacobs had previously
pled 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, Jacobs withdrew money from the NPW Profit Sharing Plan (the
Plan). In total, Jacobs 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 Jacobs’ personal
bank account and then transferred to the NPW operating account. Jacobs was
the sole trustee of the Plan. NPW went out of business in August 2005.
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 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.
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.
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.
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The Department began a consumer
education program simultaneously with its enforcement effort on
employee contributions.
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The “Top Ten Warning Signs” were
published on EBSA’s Web site to provide consumers with tips on
indicators of potential 401(k) abuse.
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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.
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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).
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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.
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