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What to Expect from an Employee Benefits Security Administration (EBSA) Investigation

What to Expect from an Employee Benefits Security Administration (EBSA) Investigation. U.S. Department of Labor Dallas Regional Office. EBSA - Structure. EBSA’s Mission Statement.

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What to Expect from an Employee Benefits Security Administration (EBSA) Investigation

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  1. What to Expect from anEmployee Benefits Security Administration (EBSA) Investigation U.S. Department of LaborDallas Regional Office

  2. EBSA - Structure

  3. EBSA’s Mission Statement The Employee Benefits Security Administration protects the security of the retirement, health and other workplace related benefits of American workers and their families. Our Agency accomplishes this by: • developing effective regulations • assisting and educating workers, plan sponsors, fiduciaries and service providers • vigorously enforcing the law

  4. What Is ERISA? Employee Retirement Income Security Act • ERISA is a federal law that sets standards for private-sector, employment-based pension and welfare benefit plans • Employee Benefits Security Administration (EBSA) enforces Title I of ERISA

  5. What Are ERISA Plans? • ERISA covers two major types of “employee benefit plans” • Pension benefit plans • E.g., traditional defined benefit pension plans, and defined contribution pension plans such as 401(k) plans, profit sharing plans, ESOPs • Welfare benefit plans • E.g., group health plans, life insurance, disability plans, severance plans

  6. What Are ERISA Plans?(continued) • Not all benefits paid to employees are ERISA covered plans • Certain payroll-based vacation and sick pay programs are not ERISA plans • State-mandated disability, workers compensation, and unemployment benefits are generally not ERISA plans • Some “executive compensation” plans are covered by ERISA but exempt from certain ERISA rules

  7. Employee Retirement Income Security Act (ERISA)

  8. Sourcesof Cases • Participant complaints • Form 5500 Reviews • Referrals from other agencies • Media • Other

  9. Types of Investigations • Civil • Plan • Service Provider • Criminal • Plan • Service Provider • Employer • Individual

  10. Issues/Areas of Review in Civil Cases • General Plan Operations • In accordance with Plan Document • Reporting and Disclosure • Bonding • Remittance of Employee Contributions • Review of Plan Assets • Prudence, Prohibited Transactions, Self Dealing

  11. Civil Plan Investigations • Start with phone call from Investigator / Auditor • Followed by confirmation letter • Date & time of visit • Plan(s) to be reviewed • Records / documents needed • Varies depending on issue

  12. Onsite Investigative Work • Interviews with key personnel and plan fiduciaries • Basic operations / services • Contributions • Benefit payments • Expenses • Investments • Identification of • Service providers • Record-keeper(s) • Record Review

  13. What is an ERISA “Fiduciary”? A person is a fiduciary with respect to a plan to the extent that the person: • exercises authority or control over management or disposition of plan assets; • renders “investment advice” for a fee or other compensation with regard to plan assets; • has discretionary authority or discretionary responsibility in administration of the plan orexercises discretionary authority or control regarding management of the plan.

  14. Basic Fiduciary Duties • Acting solely in the interests of the participants and their beneficiaries • Being prudent • Paying only reasonable and necessary expenses of the plan • Following the terms of the plan (as long as the terms of the plan do not conflict with the requirements of ERISA)

  15. Basic Documents • Plan Document/ Trust Agreement • Form 5500 filings (past 3 years) • SPD (90 days, every five years) • SAR for last year • Fidelity Bond • Fiduciary Insurance Policy • Trustee Statements (past 3 years) (asset records) • Service Provider Contracts • Meeting Minutes • Benefit Statements • Asset records • Payroll/contribution records

  16. Reporting and Disclosure Disclosure Requirements (automatically and upon request) • Summary Plan Descriptions (SPDs) • Summary of Material Modifications (SMM) • Summary Annual Reports (SARs) • “Blackout” Notices • COBRA Notices / Part 7 Notices • Participant Benefit Statements

  17. Disclosures Upon Request • Upon receipt of written request, the plan administration must provide within 30 days: • Form 5500/Form 5500-SF • Current SPD • Other instruments under which the plan is established or operated (e.g., plan trust agreement) • Miscellaneous disclosures

  18. Fidelity Bond • Bond must be for at least 10% of the amount of funds or other property a person handles • Review bond coverage when you change personnel or service providers who handle plan funds – otherwise, bond amount must be fixed at least once a year • Make sure that the plan or plans are named insureds on the bond, and that the bond is obtained from an approved surety • Discovery Period of no less than one year after termination or cancellation of bond is required • - See FAB 2008-04

  19. Employee Contributions Participant contributions become “plan assets” when reasonably segregable from employer’s general assets – failure may result in violation of trust requirements and prohibited transactions.

  20. Employee Contributions • Handling of employee contributions • Basic Rule – As soon as they can be “reasonably segregated” from employer’s general assets • “As soon as” varies from plan to plan • Safe Harbor Regulation (1/14/2010) – for plans with fewer than 100 participants

  21. Concluding the Investigation • Issues Identified • Corrective Actions • Closing Letter

  22. Correction • Usually, EBSA will send “Notice Letter” • Identifies problems • Offers chance to discuss correction • EBSA encourages Voluntary Compliance • Proper Correction >> “Closing Letter” • Identifies problems & corrective actions • No Correction >> referral to the Solicitor’s Office

  23. Needing Correction Depending upon the circumstances, EBSA may seek • Correction of prohibited transactions • Restoration of losses • Penalties • Removal of fiduciaries • Removal of service providers • Appointment of independent fiduciary • Implementation of new internal controls • Supplemental distributions to Ps & Bs • Final accounting

  24. IRS Referrals • IRS Coordination Agreement and Statute requires: • referral of prohibited transactions to IRS • IRC § 4975 excise tax (tax qualified pension plans) • referral of potential issues affecting tax qualified status

  25. Criminal Referrals • Under some circumstances, criminal referrals may be made • Theft / embezzlement • Kickbacks / bribes • False statements to investigators • Willful failures to file / false filings • Health care fraud

  26. What is the VFC Program? • Allows “Plan Officials” to correct certain violations before DOL investigates and if done properly, receive a “No-Action” letter from the Department. Plan Official DOL “You fixed it” DOL NO ACTION

  27. VFC Program - Advantages Compliance with ERISA Guidance regarding correction Restoration of losses Increased benefits for some Ps & Bs Enhanced benefit security More accurate valuations & reporting

  28. VFC Program - Advantages • “No Action” letter (upon completion) • Avoid DOL investigations • Avoid ERISA §502(l) penalty • 20% penalty on settlement agreements • Avoid potential litigation • In some cases, avoid IRC §4975 excise tax

  29. VFC Program - Applicants • Fiduciaries • Plan sponsors • Parties in Interest • Others in a position to correct • May utilize “Representative” • Must include copy of signed authorization

  30. VFC Program - Transactions

  31. VFC Program - Eligibility Neither plan nor applicant “Under Investigation” No evidence of criminal violations EBSA has not referred the transaction to the IRS; EBSA notified plan official of referral

  32. VFC Program - Correction • All losses must be restored to plan, all Prohibited Transactions corrected • Principal • Interest • Supplemental distributions must be made (when appropriate) • No correction costs paid by plan • 5500s amended when appropriate

  33. VFC Program - Application • Model Application Form • Not required, but recommended • Helps ensure a complete and accurate application • Includes Required Documents • Penalty of Perjury statement • Checklist

  34. IF IN DOUBT, CALL

  35. Compliance Assistance • Office of Regulations & Interpretations • Advisory Opinion Letters, Regulations, & Technical Rulings • (202) 693 - 8500 • Office of Exemptions & Determinations • Exemptions from Prohibited Transaction Rules • Class & Individual basis • (202) 693 - 8540

  36. Compliance Assistance • Office of Chief Accountant • Reporting & Disclosure issues • (202) 693 - 8360 • Office of Health Plan Standards & Compliance Assistance • HIPAA & other group health laws • (202) 693 - 8335

  37. Compliance Assistance EBSA website: www.dol.gov/agencies/ebsa Technical Assistance: Toll-free number (866) 444-3272 Dallas Regional Office (972) 850-4500 Publications: (866) 444-3272

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