DOL - Employee Benefits Security Administration (EBSA) Investigations Klaus Placke Acting Regional Director San Francisco Regional Office

Disclaimer This presentation may contain opinions of the presenter that may not comport with the official views of the U.S. Department of Labor and is meant for educational purposes only.

National Office Regional Offices EBSA - Structure Establishes policy and agency protocols Oversight of reporting and disclosure requirements Drafts regulations and interpretive guidance Conducts economic research to determine impact of policy and regulations on regulated community Conducts outreach such as the Health Benefits Education Campaign National Office Conduct investigations of ERISA plans Provide compliance assistance through Benefit Advisors Conduct outreach to plan sponsors and other stakeholders Regional Offices

EBSA Regional Offices

EBSA’s Mission Statement The mission of the Employee Benefits Security Administration is to assure the security of the retirement, health and other workplace related benefits of America’s workers and their families. We will accomplish this mission by: developing effective regulations; assisting and educating workers, plan sponsors, fiduciaries and service providers; and vigorously enforcing the law.

National Enforcement Projects (FY 18) Contributory Plans Criminal Project Employee Stock Ownership Plans Health Enforcement Initiatives Plan Investments Conflicts Project Protecting Benefits Distribution Project

Types of Investigations Investigations may be civil or criminal in nature and may focus on: The Employee Benefit Plan The Plan Sponsor A Service provider An Individual

General Process for Civil Plan Investigations Case Opening Letter Document Review Interviews Voluntary Compliance Letter Correction Closing Letter

Basic Documents Other Plan Records Plan Document/ Trust Agreement Summary Plan Description Summary Annual Report Individual Benefit statements Fidelity bond Custodian/investment statements Payroll/contribution records Service provider contracts Meeting minutes Auditor’s report Participant census Distribution records Health claims Communications Invoices, checks, and other source documentation for transactions

A Fiduciary is any person: Common fiduciaries include trustees and plan administrators. However, one does not need to hold a particular title to be deemed a fiduciary. Named as a plan fiduciary in plan documents -or- who: Exercises discretionary authority or control over plan management - or - Exercises authority or control over plan assets - or - Provides investment advice for compensation (direct or indirect)

Fiduciary Responsibilities under ERISA 404 Tips: Know your duties under the governing plan instruments. If you don’t have sufficient expertise to operate a plan, hire competent service providers to assist you. A 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

Fiduciary Responsibilities under ERISA 406(a) Who is a Party in Interest to the plan? Plan Fiduciaries and their relatives Service Providers Sponsoring Employer Union Certain owners, officers, employees, and related companies of the above. A Fiduciary 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

Fiduciary Responsibilities under ERISA 406(b) Tip: Keep Company business separate from Plan business! A Fiduciary must NOT act in his / her own self interest act on behalf of a party with adverse interests accept “gratuity” from those doing business w/ the Plan (kickback) While there are exemptions available for certain prohibited transactions under 406(a), there are no exemptions for self-dealing under 406(b).

Examples of Fiduciary Violations in Retirement Plans Plan abandonment Failure to process and pay distributions Loans to plan sponsor Imprudent investments – lack of due diligence in selecting, valuing & monitoring Unreasonable or unnecessary fees Plan property not titled in the name of Plan Failure to timely remit contributions Lack of prudent process to find missing participants

Examples of Violations in Group Health Plans Systemic denial of promised benefits Failure to properly adjudicate claims or provide for a full and fair review of denied claims Failure to apply employee contributions to the payment of claims or insurance premiums Failure to warn participants of funding problems or cancellation of benefits, resulting in unpaid claims Excessive service provider fees Failure to provide mental health benefits in parity with medical/surgical benefits

Voluntary Compliance Process Tips: Clarify any facts and provide supporting documentation. Be specific about the proposed corrective actions and the timeline for completion. Know that EBSA will generally not bargain away participants’ rights to their full benefits. EBSA’s Voluntary Compliance / Notice Letter Summarizes factual findings Asserts violations and the resulting loss or harm Identifies breaching fiduciaries Invites fiduciaries to discuss how violations may be corrected Asks for written reply States that legal action is possible if corrective action is not taken Voluntary Compliance Discussions EBSA representatives and Plan fiduciaries (or their legal counsel) may enter into discussions to: Resolve disputes over facts and liability, if any Finalize loss calculations, including lost opportunity costs Determine how and when losses will be restored Clarify what type of proof of correction is needed Discuss prospective corrections to prevent future violations

Co-fiduciary Liability: Fiduciary A can also be held personally liable for losses resulting from a breach by Fiduciary B if A’s failure(s) allowed B to breach if A knowingly participated in or knowingly concealed B’s breach if A knows about B’s breach and fails to make reasonable efforts to correct B’s breach Fiduciaries can be held personally liable for losses resulting from a fiduciary breach Tip: If you become aware of a problem (whether or not you caused it), take action to get it fixed!

Possible Remedies (depending on the circumstances) Goals: Put plan and its participants in the same position they would have been in had the breach not occurred; and ensure plan is administered prudently on a going forward basis. Reversal of prohibited transactions Restoration of losses, including lost opportunity costs Disgorgement of profits Implementation of new internal controls Paying unpaid benefits Re-adjudication of claims Payment of Plan’s administrative costs and expenses Removal of fiduciaries Appointment of independent fiduciary Notification to P’s and B’s of the correction

Other Enforcement Actions Tip: Voluntary compliance is the favorable way to resolve a civil case. If resolved through a settlement agreement or court order, there is a mandatory Civil Penalty imposed under ERISA 502(l), which is 20% of the “applicable recovery amount”. EBSA may seek to enter into a settlement agreement with breaching fiduciaries to resolve the case. If fiduciary is unwilling or unable to fully correct, EBSA refers the case to the Solicitor’s Office for litigation. By statute, EBSA must refer prohibited transactions (whether or not corrected) to the IRS. EBSA’s Office of Chief Accountant may take further action on Form 5500 reporting violations. If the case involves fraud or embezzlement, EBSA will open a separate criminal investigation and refer the case to the U.S. Attorney’s Office for prosecution.