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

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What to Expect from anEmployee Benefits Security
Administration (EBSA) Investigation
Susan Gilmore Fultz Associate Regional
Director Cincinnati Regional Office May 25, 2010
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EBSA Organizational Chart
Deputy Assistant Secretary for Policy
Deputy Assistant Secretary for Program Operations
Office of Exemption Determinations
Office of Policy and Research
Office of Enforcement
Office of Health Plan Standards and Compliance
Assistance
Office of the Chief Accountant
Office of Regulations and Interpretations
Office of Program Planning Evaluation and
Management
Office of Technology and Information Services
Office of Participant Assistance
Regional Offices
Boston New York Philadelphia Atlanta Cincinnati
Chicago Kansas City Dallas Los Angeles San
Francisco
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EBSA Field Offices
Regional Offices District Offices
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EBSA - Structure

• Field Offices
• 10 Regional Offices
• Provide Compliance Assistance
• Conduct Investigations

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EBSAs Mission Statement

• The Employee Benefits Security Administration
  protects the integrity of pensions, health plans,
  and other employee benefits for more than 150
  million people. Our Agency mission is to
• Assist workers in getting the information they
  need to exercise their benefit rights
• Assist plan officials to understand the
  requirements of the relevant statutes in order to
  meet their legal responsibilities
• Develop policies and regulations that encourage
  the growth of employment-based benefits
• Deter and correct violations of the relevant
  statutes through strong administrative, civil and
  criminal enforcement efforts to ensure workers
  receive promised benefits

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EBSA Enforcement Strategy

• Strategic Enforcement Plan (STEP)
• Describes basic enforcement strategy
• Last published in 2000
• Program Operating Plan (POP Guidance)
• Changes annually
• Each Regional Office creates its own POP

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National Projects (FY 2010)

• Rapid ERISA Action Team (REACT)
• Employee Stock Ownership Plans (ESOPs)
• Consultant/Advisor Project (CAP)
• Health Care Fraud / Multiple Employer Welfare
  Arrangements (MEWAs)
• Contributory Plan Criminal Project

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Sources of Cases

• Participant complaints
• Form 5500 Reviews
• Referrals from other agencies
• Media
• Other

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Types of Investigations

• Civil
• Plan
• Service Provider
• Criminal
• Plan
• Service Provider
• Employer
• Individual

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Issues/Areas of Review in Civil Cases

• Review of Plan Assets
• Prudence, Prohibited Transactions, Self Dealing
• Reporting and Disclosure
• Bonding
• General Plan Operations
• In accordance with Plan Document
• Remittance of Employee Contributions

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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

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Onsite Investigative Work

• Interviews with key personnel and plan
  fiduciaries
• Basic operations / services
• Contributions
• Benefit payments
• Expenses
• Investments

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Onsite Investigative Work

• Identification of
• Service providers
• Record-keeper(s)
• Record Review

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Basic Documents

• Plan Document/ Trust Agreement
• Form 5500 filings (past 3 years)
• SPD
• 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

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Investigative Emphasis

• Reporting Requirements
• Annual Report (Form 5500)

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Investigative Emphasis

• Disclosure Requirements
• Summary Plan Descriptions (SPDs)
• Summary of Material Modifications (SMM)
• Summary Annual Reports (SARs)
• Blackout Notices
• COBRA Notices / HIPAA Certificates more
• Provide documents on request
• Participant Benefit Statements
• Field Assistance Bulletin 2006-03
• Field Assistance Bulletin 2007-03

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Investigative Emphasis

• Bonding
• 10 of Funds Handled not less than 1,000 nor
  more than 500,000 (1,000,000 for plans with
  employer securities)
• No deductible
• Plan should be named as insured
• Discovery Period of no less than one year after
  termination or cancellation of bond is required

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Investigative Emphasis

• Fiduciary must
• Act solely in interest of Ps Bs
• Discharge his / her / its duties prudently
• (care, skill, prudence and diligence)
• Diversify plan investments
• Follow terms of governing documents
• (to the extent consistent with ERISA)

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Investigative Emphasis

• Fiduciary must NOT
• act in his / her / its own self interest
• act on behalf of a party with adverse interests
• accept gratuity from those doing business
• w/ the Plan (kickback)

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Investigative Emphasis

• Fiduciaries must NOT cause the Plan to
• engage in a prohibited transaction
• Sale / exchange with party in interest (PII)
• Loan / extension of credit with PII
• Goods, services facilities with PII
• Transfer to, use by or for the benefit of a PII

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Employee Contributions

• Handling of employee contributions
• Basic Rule
• As soon as they can be
• reasonably segregated
• from Employers general assets
• Safe Harbor Reg. Proposed 2/08 became final
  1/14/2010 - for plans with fewer than 100
  participants

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Employee Contributions

• As soon as varies from plan to plan
• will ask questions about handling
• will review practice / experience

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Employee Contributions

• Outside Limits (Not a safe harbor)
• Pension 15 Business Days
• after end of month
• of withholding / receipt
• ltlt SIMPLE IRA Plans 30 days after end of
  month gtgt
• Welfare 90 days after withholding / receipt

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Concluding the Investigation

• Depends on any problems identified
• If no problems are noted, closing letter
• If problems are noted,
• corrective actions are necessary

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Needing Correction

• Usually, EBSA will send Notice Letter
• Identifies problems
• Offers chance to discuss correction
• EBSA encourages Voluntary Compliance
• Proper Correction gtgt Closing Letter
• Identifies problems corrective actions
• No Correction gtgt referral to the Solicitors
  Office

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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

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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

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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

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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
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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

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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

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Compliance Assistance

• EBSA website www.dol.gov/EBSA
• EFAST website www.efast.dol.gov
• Publications 1-866-444-3272
• Technical Assistance (Toll-free number)
• 1-866-444-3272
• EFAST Hotline (Toll-free number)
• 1-866-463-3278 (Go EFAST)

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Compliance Assistance

• Cincinnati Regional Office
• [phone]
• or
• 1-866-444-3272 (toll-free will route to
  Cincinnati)

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Helpful EBSA Publications

• Meeting Your Fiduciary Responsibilities
• Understanding Retirement Plan Fees and Expenses
• Selecting an Auditor for Your Employee Benefit
  Plan
• Reporting and Disclosure Guide

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Questions
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Electronic Filing
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Background

• Form 5500 Annual Return/Report Series used by 4
  federal agencies.
• Information collection to enforce ERISA
  provisions and IRS code.
• EFAST has processed the Form 5500 Series filings
  since 2000.

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EFAST 2
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EFAST / EFAST2 Timeframe

• Development of EFAST2 was completed by January 1,
  2010.
• After January 1, 2010 the system is expected to
  electronic process all Form 5500 returns/reports
  (plan year 2009, 2010, prior plan years, and
  amended returns/reports).
• EFAST will continue to process timely filed Plan
  Year 2008 returns/reports until October 15, 2010.
• Early Plan Year 2009 returns/reports due before
  EFAST2 is completed have been granted an
  extension but may be submitted on paper through
  EFAST using 2008 forms and instructions.

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How does EFAST2 work?

• Signers/transmitters register for e-filing
  credentials (UserID/ETIN, PIN)
• Filers/preparers/stakeholders prepare
  returns/reports electronically
• Use certified software or IFILE
• Prepared files can be shared out-of-band
• Attachments electronic
• Signers enter UserID PIN
• Filers/transmitters click submit

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Form 5500
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2009 Forms Revisions Overview

• Facilitate move to fully electronic filing
  system.
• Streamline and simplify small plan filing.
• Better disclosure on plan fees expenses.
• Adopt Pension Protection Act (PPA) reporting
  changes.

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New Form 5500-SF

• Two Page Short Form 5500 for Small plans (under
  100 participants). Can use if
• Exempt from annual audit requirement
• 100 invested in secure investments that have a
  readily determinable fair value
• Hold no employer securities and
• Not multiemployer plan.
• No Schedules required except DB plans required to
  file actuarial schedule.
• NOTE IRS giving many 5500-EZ filers choice of
  e-filing 5500-SF with EFAST or paper 5500-EZ with
  IRS.

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Form 5500 Changes

• IRS-only Schedules (E, SSA) removed to enable
  mandatory e-filing.
• Enhanced disclosures on plan fees expenses
  (expanded Schedule C reporting).
• Put 403(b) plans on par with 401(k) plans.
• Better info on DB pension funding and
  multiemployer plans (including PPA changes) new
  actuarial schedules (Schedules SB and MB replace
  Schedule B)
• Focused compliance questions added.
• Questions instructions clarified/improved.

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Questions