ERISA Enforcement

ERISA Fiduciary Violations

Examples include:

• The failure of fiduciaries to operate the plan prudently and for the exclusive benefit of participants.

• The use of plan assets to benefit certain related parties in interest to the plan, including the plan administrator, the plan sponsor, and parties related to these individuals.

• The failure to properly value plan assets at their current fair market value, or to hold plan assets in trust.

• The failure to make benefit payments, either pension or welfare, due under the terms of the plan.

• Taking any adverse action against an individual for exercising his or her rights under the plan (e.g., being fired, fined, or otherwise being discriminated against).

• The failure of employers to offer continuing group health care coverage for at least 18 months after leaving their employer. See the COBRA booklet for additional information.

ERISA Criminal Provisions

EBSA also conducts investigations of criminal violations regarding employee benefit plans such as embezzlement, kickbacks, and false statements under Title 18 of the U.S. Criminal Code. Prosecution of these criminal violations are handled by U.S. Attorneys' offices. Title 18 contains three statutes which directly address violations involving employee benefit plans:

• Theft or Embezzlement from Employee Benefit Plan (18 U.S.C. Section 664)

• False Statements or Concealment of Facts in Relation to Documents Required by the Employee Retirement Income Security Act of 1974 (18 U.S.C. Section 1027)

• Offer, Acceptance, or Solicitation to Influence Operations of Employee Benefit Plan (18 U.S.C. Section 1954).

ERISA also contains the following criminal provisions:

• Section 411, Prohibition Against Certain Persons Holding Certain Positions

• Section 501, Willful Violation of Title I, Part 1

• Section 511, Coercive Interference. Persons convicted of violations enumerated in section 411 are subject to a bar from holding plan positions or providing services to plans for up to 13 years.

Decisions to seek criminal action turn on a number of factors including:

• The egregiousness and magnitude of the violation

• The desirability and likelihood of incarceration both as a deterrent and as a punishment

• Whether the case involves a prior ERISA violator.

Enforcement Accomplishments

If an investigation reveals a violation of the civil provisions of ERISA, EBSA takes action to obtain correction of the violation. It is EBSA's policy to promote voluntary compliance with ERISA whenever possible. Making corrections to plans includes paying amounts to restore losses, disgorging profits, and paying penalty amounts (when applicable). Labor Department attorneys work with field offices to provide every opportunity for fiduciaries to comply with ERISA. If the persons involved take the proper corrective action, the department will not bring a civil lawsuit with regard to the issues involved. When voluntary compliance is not achieved, EBSA may refer a case to Labor Department attorneys for litigation. Plan assets recovered by EBSA go directly back to the plans and participants involved.

National Enforcement Projects

EBSA seeks to focus its enforcement resources on areas that have the greatest impact on the protection of plan assets and participants' benefits. To accomplish this goal, EBSA has identified certain national enforcement projects in which field offices are to place particular investigative emphasis.

Multiple Employer Welfare Arrangements (MEWAs)

A Multiple Employer Welfare Arrangement (MEWA) is a welfare benefit plan or other arrangement which is set up to benefit the employees of two or more employers. When small employers are either unable to find or can't afford the cost of health care coverage for their employees, they may look to MEWAs for coverage. EBSA continues to find instances where MEWAs have been unable to pay claims as a result of insufficient funding and inadequate reserves, or in the worst situations, where they were operated by individuals who drained the MEWA's assets through excessive administrative fees or by outright theft. EBSA's emphasis is on abusive and fraudulent MEWAs created by unscrupulous promoters which sell the promise of inexpensive health benefit insurance, but default on their obligations.

MEWAs may also be involved in criminal violations. Numerous schemes investigated by EBSA in the last few years have involved mail fraud, wire fraud, bankruptcy fraud, and other ERISA crimes. These criminal MEWA cases, which are prosecuted for the department by U.S. Attorneys' offices, have resulted in jail sentences and court ordered restitution against fraudulent MEWA operators.

Employee Contributions Project

Since 1995, EBSA has pursued an aggressive enforcement project intended to safeguard employee contributions to 401(k) plans and health care plans by investigating situations in which employers delay forwarding employee contributions into these plans. In some cases, employers do not promptly forward the contributions to the appropriate funding vehicle. In other cases, the employer simply converts the contributions to other uses, such as business expenses. Both scenarios may occur when the employer is having fiscal problems and turns to the plan for unlawful financing. The department's revised participant contribution regulation, effective February 3, 1997, states that such contributions for a pension plan become plan assets as soon as they can reasonably be segregated from the employer's general assets, but in no event later than fifteen business days after the end of the month the contributions are withheld from employees' pay.

The national Employee Contributions Project has generated considerable attention from Congress, participants, service providers, and the media. By raising public awareness, the project increased further the volume of participant complaints, which can be valuable leads. An intended impact of the publicity was to put employers on notice that the department would vigorously pursue recoveries of diverted contributions and earnings. So far, as of June 30, 2004, the department has monetary results of over $328 million for participants in 401(k) plans, and has obtained 136 indictments. For the first three quarters of fiscal year 2004, the department has monetary results of over $22 million and has obtained 9 indictments. The department has monetary results of over $24 million in employee contributions and claims paid in its health plan investigations.

Rapid ERISA Action Team (REACT)

In carrying out its responsibility to protect participants' and beneficiaries' benefits, EBSA has targeted populations of plan participants who are potentially exposed to the greatest risk of loss. One such group of individuals is participants and beneficiaries of plans whose sponsor has filed for bankruptcy. The new REACT initiative enables EBSA to respond in an expedited manner to protect the rights and benefits of plan participants when the plan sponsor faces severe financial hardship or bankruptcy and the assets of the employee benefit plan are in jeopardy. Under REACT, EBSA responds to employer bankruptcies by ensuring that all available legal actions have been taken to preserve pension plan assets. In such situations, it is common to find employers holding assets which belong to or are owed to plans, occasionally intermingling those assets with the employers' own assets. When a plan sponsor faces severe financial hardship, the assets of any plans and the benefits of participants are placed at great risk. Due to the tight time frames and the intricacies of the bankruptcy laws, plan assets and employee benefits are often lost because of the plan fiduciaries' failure to timely identify pension plan contributions that have not been paid to the plan's trust.

Under REACT, when a company has declared bankruptcy, EBSA takes immediate action to ascertain whether there are plan contributions which have not been paid to the plans' trust, to advise all affected plans of the bankruptcy filing, and to provide assistance in filing proofs of claim to protect the plans, the participants, and the beneficiaries. EBSA also attempts to identify the assets of the responsible fiduciaries and evaluate whether a lawsuit should be filed against those fiduciaries to ensure that the plans are made whole and the benefits secured.

Orphan Plans Project

The Orphan Plans project, begun in October 1999, deals with situations where plans have been abandoned by plan sponsors and fiduciaries, or fiduciaries have completely abdicated their responsibilities to administer plans prudently and in the sole interest of the participants. The department's increased emphasis on consumer protection and protection of low-wage workers, as well as the agency's enforcement strategy which includes protection of at-risk populations, makes this a timely issue.

The objectives of the project are to:

• Locate orphan plans which have been abandoned by fiduciaries as a result of death, neglect, bankruptcy, or incarceration

• Determine if a fiduciary can be located to perform fiduciary functions such as terminating the plan, distributing the plan's assets and filing appropriate financial reporting such as the terminal annual report. In the event that no fiduciary is located, EBSA will take an active role in the appointment of an independent fiduciary so that participants and beneficiaries can receive their earned benefits.

Health Disclosure and Claims Issues

EBSA has in recent years applied substantial enforcement resources to the targeting and investigation of fiduciary violations, as well as criminal violations, relating to health benefit plans. EBSA's role in the health care area has also expanded as a result of new legislation that included additional regulatory and enforcement responsibilities. These new statutes include 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) . The agency's focus in the health area is primarily to ensure that plans which are funded are financially sound and that plan operators run their health plan prudently and in the participants' sole interest.

Voluntary Fiduciary Correction Program

The Office of Enforcement oversees the administration of the Voluntary Fiduciary Correction Program (VFCP), a voluntary compliance program intended to protect the financial security of workers through the identification and correction of transactions that violate Part 4 of Title I of ERISA. Applications to the VFCP should be mailed to the appropriate EBSA office.

Participant and Beneficiary Complaints

Information provided by plan participants and beneficiaries is an important source on which EBSA relies for developing investigations. Complaints are often the agency's first indications of problems with a pension or health and welfare plan. If you believe that there is a problem with your plan, we want to know about it. Please contact the EBSA office nearest you.

In order to maintain the independence and integrity of the investigative process, EBSA does not confirm the existence of a specific investigation or discuss the status of an on-going investigation.

If you are complaining about being denied a benefit from an employee benefit plan, you should make an application through normal claims procedures before contacting us. If your application has been denied, we may intervene on your behalf where there is reason to believe you are entitled to benefits. Such intervention will be informal and generally will not include litigation on behalf of any individual. Efficient use of our resources requires that formal investigations and enforcement actions be limited to broader problems which may affect a number of participants.

Annual Returns/Reports of Employee Benefit Plans (Form 5500 Returns) provide financial and operational information. They should be provided by plan sponsors, and help participants and beneficiaries police their plans. If you have any problem obtaining copies of your Annual Return, please contact the ERISA Public Disclosure Room . If you believe that your plan did not file an Annual Return (or that the information provided on your Annual Return is not accurate), please contact EBSA's Office of the Chief Accountant. If you have any technical questions concerning ERISA, please contact EBSA's Division of Technical Assistance and Inquiries.

Desk Reviews of Form 5500 Annual Report Filings

ERISA contains several provisions which were enacted in recognition of the need to establish an effective mechanism to protect the interests of plan participants and beneficiaries, as well as to establish an effective mechanism to detect and deter abusive practices. These provisions include the annual reporting of financial information and activities of employee benefit plans. This is accomplished through the filing of a Form 5500 Series Annual Report. The Secretary of Labor is principally responsible for enforcing ERISA's fiduciary provisions and the annual reporting and disclosure provisions of ERISA.

Office of the Chief Accountant reviews Form 5500 Annual Reports to ensure that the information contained therein is complete and accurate. Where deficient, the Form 5500 Annual Report may be rejected, potentially subjecting the plan administrator to civil penalties not to exceed $1000 per day.

Non-Filer Enforcement Program

The Non-Filer Enforcement Program began in late 1993 as an effort to proactively target employee benefit plans who are required to file annual reports, but have not. Non-Filers are generally companies and corporations, large and small, that have illegally elected not to file annual reports for various reasons. The failure to file annual reports could be a signal that participants' benefits are jeopardy.

The program seeks both retroactive (back to 1988) and prospective compliance. Employee benefit plans targeted through the Non-Filer Enforcement Program or referred to the program either through a department investigation or through a referral from the Internal Revenue Service or Pension Benefit Guaranty Corporation are not eligible to participate in other Department of Labor voluntary or reduced penalty programs.

Plan participants and beneficiaries are encouraged to notify the department if they are unable to obtain or locate the annual reports for their employee benefit plans.

When notifying the department of a potential violation you should try to provide the following information:

• Name and Address of the Company

• E.I.N. (Employer Identification Number)

• Plan Name

• Plan Number (three digit number either 001 for pension plans or 501 for welfare plans)

Please send the above information to the following address:

U.S. Department of Labor
Employee Benefits Security Administration
Office of the Chief Accountant
200 Constitution Avenue, NW, Suite N-5510
Washington, DC 20210
Attention: Non-Filer Program

The department has the authority to investigate both civil and criminal violations.

Penalties for the failure to file annual reports have been established to reflect the egregious nature of the violation. The Non-Filer penalty for failure to file annual reports is assessed at a rate of $300 per day up to a maximum of $30,000 per annum for each plan year filing. The assessment is cumulative: for example, if you failed to file the 1990 annual report for 5 years the penalty for that one filing could be as much as $150,000.  Plan administrators are encouraged to take corrective action  through voluntary compliance.

Late-Filer Enforcement Program

For those plan administrators who do not take advantage of the reduced civil penalties offered by the Delinquent Filer Voluntary Compliance Program (DFVC), the department notifies plan administrators of its intent to assess the full penalty for failure to file timely annual reports for the plan years after 1987. Pursuant to ERISA Section 502(c)(2), these plan administrators may be assessed $50 per day for each day an annual report is filed after its required due date, without regard to any extensions to filing.

These plan administrators, identified as the result of the department's ongoing investigative efforts are required to submit a Statement of Reasonable Cause to explain the facts for failure to file a timely annual report. Upon review of the Statement of Reasonable Cause, the department determines whether to assess the plan administrator the full late-filer penalty or to provide them a partial or full abatement.

This program only targets those plan administrators with delinquent filings who fail to avail themselves of the DFVC Program.

On-Site Reviews of Audit Workpapers

An integral component of the annual reporting and disclosure provisions under Title I of ERISA is the requirement for plans with more than 100 participants, which hold assets in trust, to obtain an annual financial audit by an independent qualified public accountant (IQPA).

Audited financial statements and the IQPA's report on the fairness and consistency of their presentation must be filed with the Form 5500. The audit requirement is intended to ensure the integrity of the financial information incorporated in the annual reports. Section 103 of ERISA specifically requires that these audits be conducted pursuant to the standards established by the accounting and auditing profession in the pronouncements which define generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS).

While ERISA's auditing provisions have worked to provide the DOL and the plan participants and beneficiaries with information about plan operations, experience has shown that IQPA audits do not consistently meet professional standards. In addressing this concern, Office of the Chief Accountant has established an on-going quality review program for employee benefit plan audits. This program involves a random selection of plan audits that are reviewed to ensure that the level and quality of audit work performed supports the opinion rendered by the IQPA on the plan's financial statements and that such work is adequately documented in the IQPA's work papers as required by established professional standards.

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