DOL Investigations and DOL Investigations and Enforcement ActionsEnforcement Actions

March 8, 2010March 8, 2010

Billy BeaverBilly BeaverU.S. Department of LaborU.S. Department of Labor

Employee Benefits Security AdministrationEmployee Benefits Security Administration

The views expressed are those of the speakers and do not necessarily represent the official The views expressed are those of the speakers and do not necessarily represent the official position of the Department.position of the Department.

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IntroductionIntroductionEmployee Benefits Security Administration Employee Benefits Security Administration

ERISA EnforcementERISA Enforcement EBSA MissionEBSA Mission EBSA StructureEBSA Structure EBSA 2008 ResultsEBSA 2008 Results

Today’s Topics:Today’s Topics: National Enforcement ProjectsNational Enforcement Projects The Investigative ProcessThe Investigative Process Criminal InvestigationsCriminal Investigations Other Hot IssuesOther Hot Issues Voluntary Fiduciary Correction ProgramVoluntary Fiduciary Correction Program

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Overarching Vision for Department’s Overarching Vision for Department’s Strategic Plan:Strategic Plan:

Good Jobs for EveryoneGood Jobs for Everyone

EBSA’s roleEBSA’s role:: Improve health benefits and retirement Improve health benefits and retirement

security for all workerssecurity for all workers

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EBSA MISSIONEBSA MISSION Deter Deter andand correct violations correct violations of the relevant statutesof the relevant statutes

through strong administrative, civil and criminal through strong administrative, civil and criminal enforcement efforts to ensure workers receive promised enforcement efforts to ensure workers receive promised benefitsbenefits

Develop policies and laws thatDevelop policies and laws that encourage the growth encourage the growth of employment-based benefitsof employment-based benefits

Assist workersAssist workers in getting the information they need to in getting the information they need to protect their benefit rightsprotect their benefit rights

Assist plan officialsAssist plan officials to understand the requirement of to understand the requirement of the relevant statutes in order to meet their legal the relevant statutes in order to meet their legal responsibilitiesresponsibilities

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EBSA StructureEBSA Structure Field OfficesField Offices

Ten Regional OfficesTen Regional Offices San Francisco Regional Office – SFROSan Francisco Regional Office – SFRO

• Northern California, Nevada, UtahNorthern California, Nevada, Utah Five District OfficesFive District Offices

Seattle District Office – SeDOSeattle District Office – SeDO• Alaska, Washington, Oregon, IdahoAlaska, Washington, Oregon, Idaho

Compliance AssistanceCompliance Assistance Enforcement/InvestigationsEnforcement/Investigations

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EBSA FY 2008 Enforcement EBSA FY 2008 Enforcement ResultsResults

EBSA closed 3,570 civil investigationsEBSA closed 3,570 civil investigations 75.52% closed with $1.2 billion in 75.52% closed with $1.2 billion in

monetary results or other corrective actionmonetary results or other corrective action 212 criminal investigations closed212 criminal investigations closed 101 indictments obtained101 indictments obtained

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EBSA FY 2008 Complaint EBSA FY 2008 Complaint Resolution ResultsResolution Results

EBSA handled 174,978 inquiriesEBSA handled 174,978 inquiries $139.2 million in monetary $139.2 million in monetary

recoveries and other corrective recoveries and other corrective actionaction

Referred 871 inquiries for Referred 871 inquiries for investigationinvestigation

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National Policy PriorityNational Policy Priority

Investigation of delinquent employee Investigation of delinquent employee contributions to both health plans and contributions to both health plans and retirement plansretirement plans

Ensure potential violation is investigated in Ensure potential violation is investigated in every contributory health and retirement every contributory health and retirement plan investigationplan investigation

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Delinquent Employee Delinquent Employee ContributionsContributions

Failure to forward employee withholdings Failure to forward employee withholdings in a timely mannerin a timely manner

ERISA Reg. 29 CFR 2510.3-102ERISA Reg. 29 CFR 2510.3-102

Advisory Opinion 2002-02A (May 2002)Advisory Opinion 2002-02A (May 2002)

Field Assistance Bulletin 2003-2 (May Field Assistance Bulletin 2003-2 (May 2003)2003)

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EBSA National Enforcement EBSA National Enforcement ProjectsProjects

Contributory Plan Criminal Project (CPCP)Contributory Plan Criminal Project (CPCP) REACT (Bankruptcy)REACT (Bankruptcy) Health Fraud/MEWAsHealth Fraud/MEWAs Employee Stock Ownership Plans Employee Stock Ownership Plans

(ESOPs)(ESOPs) Consultant/ Adviser ProjectConsultant/ Adviser Project

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Contributory Plan Criminal ProjectContributory Plan Criminal Project

Target most egregious and persistent Target most egregious and persistent violatorsviolators

Protect the most vulnerable populations, Protect the most vulnerable populations, by pursuing criminal prosecution of by pursuing criminal prosecution of individuals who commit crimes involving individuals who commit crimes involving contributory health and retirement planscontributory health and retirement plans

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Bankruptcy and Financially Bankruptcy and Financially Distressed Plan SponsorsDistressed Plan Sponsors

Rapid ERISA Action Team (REACT)Rapid ERISA Action Team (REACT) Preserve plan assetsPreserve plan assets Determine whether the sponsor has made Determine whether the sponsor has made

all required contributionsall required contributions Ensure plan’s rights are protectedEnsure plan’s rights are protected Identify responsible fiduciariesIdentify responsible fiduciaries

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Health Fraud/MEWAsHealth Fraud/MEWAs Civil Enforcement ActionsCivil Enforcement Actions

Temporary Restraining Order (TRO)Temporary Restraining Order (TRO) Pursue Monetary JudgmentsPursue Monetary Judgments Bar from future Plan association Bar from future Plan association Appointment of Independent FiduciaryAppointment of Independent Fiduciary

Criminal Enforcement ActionsCriminal Enforcement Actions Seizure of AssetsSeizure of Assets Forfeiture of AssetsForfeiture of Assets Criminal PenaltiesCriminal Penalties 13 year bar13 year bar

• Knowing violation of bar causes additional criminal violationsKnowing violation of bar causes additional criminal violations

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Employee Stock Ownership Employee Stock Ownership PlansPlans

Potential ERISA ViolationsPotential ERISA Violations Failure to properly value employer Failure to properly value employer

securitiessecurities ““Optimistic” valuationsOptimistic” valuationsDated valuationsDated valuations Fraudulent valuations Fraudulent valuations

Refinancing of ESOP loansRefinancing of ESOP loansApplication of FAB 2002-1Application of FAB 2002-1

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CONSULTANT/ADVISER CONSULTANT/ADVISER PROJECTPROJECT

SUBJECTS OF INVESTIGATION:SUBJECTS OF INVESTIGATION: Pension ConsultantsPension Consultants Investment AdvisersInvestment Advisers Plan FiduciariesPlan Fiduciaries

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CONSULTANT/ADVISER CONSULTANT/ADVISER PROJECTPROJECT

ERISA ISSUES:ERISA ISSUES: Receipt of improper, undisclosed Receipt of improper, undisclosed

compensationcompensation Fiduciary consultant/advisor increases its Fiduciary consultant/advisor increases its

compensation, even if disclosedcompensation, even if disclosed Fiduciary Failure to MonitorFiduciary Failure to Monitor Potential criminal violations, such as Potential criminal violations, such as

kickbacks or fraudkickbacks or fraud

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INVESTIGATIVE PROCESSINVESTIGATIVE PROCESS

Statutory Grant of Investigative PowerStatutory Grant of Investigative Power

ERISA section 504(a)ERISA section 504(a)

Subpoena authoritySubpoena authority

Disclosure of information between Disclosure of information between IRS and DOLIRS and DOL

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INVESTIGATIVE PROCESSINVESTIGATIVE PROCESS

EBSA Investigative ProcedureEBSA Investigative Procedure Enforcement GuidelinesEnforcement Guidelines

Nondisclosure of basis of investigationNondisclosure of basis of investigation

Enforcement Manual Provides Enforcement Manual Provides GuidelinesGuidelines

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Potential Areas of InvestigationPotential Areas of Investigation Fiduciary DutiesFiduciary Duties Co-fiduciary LiabilityCo-fiduciary Liability Plan Expenses and OperationsPlan Expenses and Operations Plan Investments Plan Investments

• Conflicts in Interest TransactionsConflicts in Interest Transactions• Unique investments (Hard to value, Ltds, Derivatives, Hedge FundsUnique investments (Hard to value, Ltds, Derivatives, Hedge Funds

Prohibited TransactionsProhibited Transactions Employer SecuritiesEmployer Securities Real Estate HoldingsReal Estate Holdings Claims ProceduresClaims Procedures Bonding and ReportingBonding and Reporting

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Document RequestsDocument Requests Plan DocumentsPlan Documents Financial RecordsFinancial Records Accountant’s RecordsAccountant’s Records Service Agreements and ContractsService Agreements and Contracts Claims Payment RecordsClaims Payment Records Minutes of MeetingsMinutes of Meetings Plan Asset Records, including appraisalsPlan Asset Records, including appraisals Fidelity BondFidelity Bond IRS Determination LetterIRS Determination Letter

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Resolution of the InvestigationResolution of the Investigation

No violations No violations Violations detected but no further action Violations detected but no further action

warrantedwarranted Voluntary Compliance settlementVoluntary Compliance settlement Civil litigationCivil litigation Civil money penaltiesCivil money penalties IRS referralIRS referral Disclosure of investigative resultsDisclosure of investigative results

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Correction of ViolationsCorrection of ViolationsGeneral RuleGeneral Rule

The Plan must be made wholeThe Plan must be made whole Prohibited TransactionsProhibited Transactions

DOL PTCE 94-71DOL PTCE 94-71

Civil PenaltiesCivil Penalties ERISA Section 502(l)ERISA Section 502(l) AmountAmount Waiver or Reduction of Penalty by DOLWaiver or Reduction of Penalty by DOL Penalty Offset by PT Excise TaxPenalty Offset by PT Excise Tax

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Criminal InvestigationsCriminal Investigations

ERISA Criminal StatutesERISA Criminal Statutes

Section 411 – ERISA BarSection 411 – ERISA Bar

Section 501 – ReportingSection 501 – Reporting

Section 511 – Coercive InterferenceSection 511 – Coercive Interference

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Criminal InvestigationsCriminal Investigations

Title 18 Title 18 18 USC 664, 1027 & 1954: Embezzlement 18 USC 664, 1027 & 1954: Embezzlement

False Records & KickbacksFalse Records & Kickbacks

Health Care PenaltiesHealth Care Penalties 18 USC 669, 1035, 1347: Embezzlement, 18 USC 669, 1035, 1347: Embezzlement,

False Statement, Health Care FraudFalse Statement, Health Care Fraud

Other Relevant Criminal StatutesOther Relevant Criminal Statutes Mail, Wire, Conspiracy, Money LaunderingMail, Wire, Conspiracy, Money Laundering, etc., etc.

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CIVIL v. CRIMINALCIVIL v. CRIMINAL

Crossing the Line

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406(b)(1) vs. 18 USC 664406(b)(1) vs. 18 USC 664 A fiduciary with respect to a plan shall not A fiduciary with respect to a plan shall not

deal with assets of the plan in his own deal with assets of the plan in his own interest or for his own account [self dealing]interest or for his own account [self dealing]

It is a felony to convert to your own use or It is a felony to convert to your own use or to the use of another moneys or other to the use of another moneys or other assets of a plan or of any other connected assets of a plan or of any other connected fund [embezzlement]fund [embezzlement]

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COMPARISONCOMPARISON

ERISA 406(b)(1)ERISA 406(b)(1) 18 U.S.C. § 664 18 U.S.C. § 664

A Fiduciary

Own Interest

Plan Assets

Shall Not Deal

Any Person

Own Use or Use of Another

Plan Assets or Connected Fund

Willfully [Not Deal]

§ 664 much broader, but requires specific intent

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““RED FLAGS”RED FLAGS” ConcealmentConcealment Falsification, false statements, destruction of Falsification, false statements, destruction of

recordsrecords Extravagant personal gainExtravagant personal gain Flagrant disobedience of instructionsFlagrant disobedience of instructions Others:Others:

Transactions different from usual course of action

Evasiveness, unresponsiveness

Missing records

Flight

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Other Hot IssuesOther Hot Issues Fees and expensesFees and expenses

Selection and monitoring of service providersSelection and monitoring of service providers See DOL and SEC Tips for Selecting and Monitoring See DOL and SEC Tips for Selecting and Monitoring

Pension ConsultantsPension Consultants

Abandoned PlansAbandoned Plans

Unique InvestmentsUnique Investments

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Voluntary Fiduciary Correction Voluntary Fiduciary Correction ProgramProgram

Avoid investigationAvoid investigation

Avoid civil penaltyAvoid civil penalty

Avoid excise taxAvoid excise tax

Do the right thingDo the right thing!!

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ContactContact Points Points EBSA website:EBSA website: www.dol.gov/ebsawww.dol.gov/ebsa

Technical Assistance nationwide-Technical Assistance nationwide-

1-866-444-EBSA (3272)1-866-444-EBSA (3272)

Publications: 1-800-998-7542 Publications: 1-800-998-7542

San Francisco Office (415) 625-2475San Francisco Office (415) 625-2475

VFCP Coordinator Audrey Chan: VFCP Coordinator Audrey Chan:

(415) 625-2445 or (415) 625-2445 or VFCP-VFCP-SFRO@dol.govSFRO@dol.gov