DOL Investigations and Enforcement Actions March 8, 2010

1. DOL Investigations and Enforcement ActionsMarch 8, 2010 Billy Beaver U.S. Department of Labor Employee Benefits Security Administration The views expressed are those of the speakers and do not necessarily represent the official position of the Department.

2. Introduction Employee Benefits Security Administration • ERISA Enforcement • EBSA Mission • EBSA Structure • EBSA 2008 Results Today’s Topics: • National Enforcement Projects • The Investigative Process • Criminal Investigations • Other Hot Issues • Voluntary Fiduciary Correction Program

3. Overarching Vision for Department’s Strategic Plan:Good Jobs for Everyone EBSA’s role: • Improve health benefits and retirement security for all workers

4. EBSA MISSION • Deter and correct violationsof the relevant statutesthrough strong administrative, civil and criminal enforcement efforts to ensure workers receive promised benefits • Develop policies and laws thatencourage the growth of employment-based benefits • Assist workersin getting the information they need to protect their benefit rights • Assist plan officialsto understand the requirement of the relevant statutes in order to meet their legal responsibilities

5. EBSA Structure Field Offices • Ten Regional Offices • San Francisco Regional Office – SFRO • Northern California, Nevada, Utah • Five District Offices • Seattle District Office – SeDO • Alaska, Washington, Oregon, Idaho • Compliance Assistance • Enforcement/Investigations

6. EBSA FY 2008 Enforcement Results • EBSA closed 3,570 civil investigations • 75.52% closed with $1.2 billion in monetary results or other corrective action • 212 criminal investigations closed • 101 indictments obtained

7. EBSA FY 2008 Complaint Resolution Results • EBSA handled 174,978 inquiries • $139.2 million in monetary recoveries and other corrective action • Referred 871 inquiries for investigation

8. National Policy Priority • Investigation of delinquent employee contributions to both health plans and retirement plans • Ensure potential violation is investigated in every contributory health and retirement plan investigation

9. Delinquent Employee Contributions • Failure to forward employee withholdings in a timely manner • ERISA Reg. 29 CFR 2510.3-102 • Advisory Opinion 2002-02A (May 2002) • Field Assistance Bulletin 2003-2 (May 2003)

10. EBSA National Enforcement Projects • Contributory Plan Criminal Project (CPCP) • REACT (Bankruptcy) • Health Fraud/MEWAs • Employee Stock Ownership Plans (ESOPs) • Consultant/ Adviser Project

11. Contributory Plan Criminal Project • Target most egregious and persistent violators • Protect the most vulnerable populations, by pursuing criminal prosecution of individuals who commit crimes involving contributory health and retirement plans

12. Bankruptcy and Financially Distressed Plan Sponsors Rapid ERISA Action Team (REACT) • Preserve plan assets • Determine whether the sponsor has made all required contributions • Ensure plan’s rights are protected • Identify responsible fiduciaries

13. Health Fraud/MEWAs • Civil Enforcement Actions • Temporary Restraining Order (TRO) • Pursue Monetary Judgments • Bar from future Plan association • Appointment of Independent Fiduciary • Criminal Enforcement Actions • Seizure of Assets • Forfeiture of Assets • Criminal Penalties • 13 year bar • Knowing violation of bar causes additional criminal violations

14. Employee Stock Ownership Plans Potential ERISA Violations • Failure to properly value employer securities • “Optimistic” valuations • Dated valuations • Fraudulent valuations • Refinancing of ESOP loans • Application of FAB 2002-1

15. CONSULTANT/ADVISER PROJECT SUBJECTS OF INVESTIGATION: • Pension Consultants • Investment Advisers • Plan Fiduciaries

16. CONSULTANT/ADVISER PROJECT ERISA ISSUES: • Receipt of improper, undisclosed compensation • Fiduciary consultant/advisor increases its compensation, even if disclosed • Fiduciary Failure to Monitor • Potential criminal violations, such as kickbacks or fraud

17. INVESTIGATIVE PROCESS Statutory Grant of Investigative Power • ERISA section 504(a) • Subpoena authority • Disclosure of information between IRS and DOL

18. INVESTIGATIVE PROCESS EBSA Investigative Procedure • Enforcement Guidelines • Nondisclosure of basis of investigation • Enforcement Manual Provides Guidelines

19. Potential Areas of Investigation • Fiduciary Duties • Co-fiduciary Liability • Plan Expenses and Operations • Plan Investments • Conflicts in Interest Transactions • Unique investments (Hard to value, Ltds, Derivatives, Hedge Funds • Prohibited Transactions • Employer Securities • Real Estate Holdings • Claims Procedures • Bonding and Reporting

20. Document Requests • Plan Documents • Financial Records • Accountant’s Records • Service Agreements and Contracts • Claims Payment Records • Minutes of Meetings • Plan Asset Records, including appraisals • Fidelity Bond • IRS Determination Letter

21. Resolution of the Investigation • No violations • Violations detected but no further action warranted • Voluntary Compliance settlement • Civil litigation • Civil money penalties • IRS referral • Disclosure of investigative results

22. Correction of Violations General Rule • The Plan must be made whole • Prohibited Transactions • DOL PTCE 94-71 Civil Penalties • ERISA Section 502(l) • Amount • Waiver or Reduction of Penalty by DOL • Penalty Offset by PT Excise Tax

23. Criminal Investigations • ERISA Criminal Statutes • Section 411 – ERISA Bar • Section 501 – Reporting • Section 511 – Coercive Interference

24. Criminal Investigations • Title 18 • 18 USC 664, 1027 & 1954: Embezzlement False Records & Kickbacks • Health Care Penalties • 18 USC 669, 1035, 1347: Embezzlement, False Statement, Health Care Fraud • Other Relevant Criminal Statutes • Mail, Wire, Conspiracy, Money Laundering, etc.

25. CIVIL v. CRIMINAL Crossing the Line

26. 406(b)(1) vs. 18 USC 664 • A fiduciary with respect to a plan shall not deal with assets of the plan in his own interest or for his own account [self dealing] • It is a felony to convert to your own use or to the use of another moneys or other assets of a plan or of any other connected fund [embezzlement]

27. COMPARISON ERISA 406(b)(1) 18 U.S.C. § 664 • Any Person • Own Use or Use of Another • Plan Assets or Connected Fund • Willfully [Not Deal] • A Fiduciary • Own Interest • Plan Assets • Shall Not Deal § 664 much broader, but requires specific intent

28. “RED FLAGS” • Concealment • Falsification, false statements, destruction of records • Extravagant personal gain • Flagrant disobedience of instructions • Others: • Transactions different from usual course of action • Evasiveness, unresponsiveness • Missing records • Flight

29. Other Hot Issues • Fees and expenses • Selection and monitoring of service providers • See DOL and SEC Tips for Selecting and Monitoring Pension Consultants • Abandoned Plans • Unique Investments

30. Voluntary Fiduciary Correction Program • Avoid investigation • Avoid civil penalty • Avoid excise tax • Do the right thing!

31. Contact Points • EBSA website:www.dol.gov/ebsa • Technical Assistance nationwide- • 1-866-444-EBSA (3272) • Publications: 1-800-998-7542 • San Francisco Office (415) 625-2475 • VFCP Coordinator Audrey Chan: (415) 625-2445 or VFCP-SFRO@dol.gov