U.S. Department of Labor Dallas Regional Office What to Expect from an Employee Benefits Security Administration (EBSA) Investigation U.S. Department of Labor Dallas Regional Office

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 and fiduciary responsibility seminars National Office Conduct investigations of ERISA plans Provide compliance assistance through Benefits Advisors Conduct outreach to plan sponsors and other stakeholders Regional Offices

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

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

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

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

Employee Retirement Income Security Act (ERISA) Generally, ERISA allows the plan sponsor to decide whether to offer a plan and allows flexibility in the plan’s benefit design. Applies to employee benefit plans sponsored by private sector employers and/or unions NOT government plans NOT church plans Other exclusions may apply

Sources of Cases Participant complaints Form 5500 Reviews Referrals from other agencies Media Other

Types of Investigations Civil Plan Service Provider Criminal Employer Individual

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

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

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

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 or exercises discretionary authority or control regarding management of the plan.

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)

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

Basic Documents (Health Plans) Plan document / SPD / Certificate of Coverage Summary of Benefits and Coverage (SBC) Service provider contracts Premium or contribution schedules Documents related to plan finances Documents related to claims Participant notices required by ERISA Other documents related to ERISA compliance

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

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

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

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.

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

Concluding the Investigation Issues Identified Corrective Actions Closing Letter

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

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

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

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

DOL 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 Designed to be a voluntary program No need to consult with EBSA Apply after correction DOL “You fixed it” DOL NO ACTION

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

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

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

VFC Program - Transactions

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

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

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

IF IN DOUBT, CALL

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

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

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