What to Expect from an Employee Benefits Security Administration (EBSA) Investigation. Voluntary Fiduciary Correction Program.

Transcription

1 What to Expect from an Employee Benefits Security Administration (EBSA) Investigation Voluntary Fiduciary Correction Program May 15, 2014 Miguel Paredes, Supervisory Investigator Thuy Pham, Benefits Advisor Los Angeles Regional Office

2 EBSA Organizational Chart Assistant Secretary Deputy Assistant Secretary for Program Operations Deputy Assistant Secretary Office of Exemption Determinations Office of Health Plan Standards and Compliance Assistance Office of Technology and Information Services Office of Enforcement Office of Regulations and Interpretations Office of Participant Assistance Office of Policy and Research Office of the Chief Accountant Office of Program Planning Evaluation and Management Regional Offices Boston Chicago New York Kansas City Philadelphia Dallas Atlanta Los Angeles Cincinnati San Francisco

3 EBSA Field Offices Regional Offices District Offices

4 EBSA Structure Field Offices 10 Regional Offices Conduct Investigations Provide Compliance Assistance

5 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

6 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

7 National Projects (FY 13) Contributory Plans Criminal Project (CPCP) Rapid ERISA Action Team (REACT) Employee Stock Ownership Plans (ESOPs) Consultant/Advisor Project (CAP) Health Benefits Security Project (HBSP)

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

9 Types of Investigations Civil Plan Service Provider Criminal Plan Service Provider Employer Individual

10 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

11 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

12 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)

13 Onsite Investigative Work Record Review

14 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

15 Investigative Emphasis Reporting Requirements Annual Report (Form 5500) Health Care Provisions Affordable Care Act Genetic Information Nondiscrimination Act (GINA) Mental Health Parity and Addiction Equity Act

16 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 Field Assistance Bulletin

17 Investigative Emphasis Disclosure Requirements Service Provider Disclosures 408(b)(2) Amendment Effective July 1, 2012 Provide fiduciaries with direct/indirect compensation Info needed to identify potential conflicts of interest Satisfy reporting & disclosure requirements Participant level Disclosure 29 CFR a 5 Effective August 30, 2012 Investment of plan assets is a fiduciary act Provide Ps & Bs plan related and certain investment related info When participant directed Participants made aware of right & responsibilities Participants are provided with sufficient info re. plan investment options

18 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 See FAB

19 Fiduciary must Investigative Emphasis 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)

20 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)

21 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

22 Employee Contributions Handling of employee contributions Basic Rule As soon as they can be reasonably segregated from Employer s general assets Safe Harbor Reg. 1/14/2010 for plans with fewer than 100 participants

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

24 Employee Contributions Outside Limits (Not a safe harbor) Pension 15 Business Days after end of month of withholding / receipt << SIMPLE IRA Plans 30 days after end of month >> Welfare 90 days after withholding / receipt

25 Prevailing Wage Fringe Benefits Identify all contractors, subcontractors, and contracting agency Review all contracts and agreements Review benefit plan documents for fringe benefit information Determine how fringe benefits are reported on annual audits Identify certified payroll process Audit certified payrolls and Statements of Compliance Determine how fringe benefits are paid cash or deposit Review trust records of fringe benefit trust accounts established

26 Prevailing Wage Fringe Benefits Review all requests for payment Review any contracts subject to defaults (why) Review claims filed against construction bonds Review general journal entries for benefit payments Identify any entries that appear suspicious or excessive Review W2s for corporate officer salaries Review corporate bank statements

27 Concluding the Investigation Depends on any problems identified If no problems are noted, closing letter If problems are noted, corrective actions are necessary

28 Needing 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

29 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

30 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

31 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

32 Voluntary Fiduciary Correction Program

33 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. DOL NO ACTION You fixed it DOL

34 VFC Program Designed to be a voluntary program No need to consult with EBSA Apply after correction

35 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

36 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

37 VFC Program Applicants Fiduciaries Plan sponsors PIIs Others in a position to correct May utilize Representative Must include copy of signed authorization

38 VFC Program Process Identify potential ERISA violations Determine VFCP eligibility Correct violations File an application with Regional Office

39 VFC Program Transactions

40 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

41 VFC Program Correction All losses must be restored to plan, all PTs corrected Principal Interest Supplemental distributions must be made (when appropriate) No correction costs paid by plan 5500s amended when appropriate

42 VFC Program Application Narrative Describe parties involved, explain breach and correction, and how earliest reasonable date was determined in delinquent EE contributions apps. Supporting documentation e.g., relevant parts of plan, loan documents, FMV determinations Penalty of Perjury Statement Checklist Proof of Payment

43 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

44 VFC Program Exemption Delinquent Contributions/Loan Contributions to Pension Plans Loans to Fair Market Rates Purchases/Sales w/ FMV Sale/Leaseback to Employer FMV Illiquid Assets Settlor fees paid to PII

45 VFC Program Exemption Notice Requirement Notice Exception Delinquent employee contributions/loan repayments Excise tax <= $100 Excise tax which would otherwise be payable to IRS is paid to plan Distributed to participants as earnings would be Do not have to file IRS Form 5330

46 Compliance Assistance Office of Regulations & Interpretations Advisory Opinion Letters, Regulations, Technical Rulings (202) Office of Exemptions & Determinations Exemptions from Prohibited Transaction Rules Class & Individual basis (202)

47 Compliance Assistance Office of Chief Accountant Reporting & Disclosure issues (202) Office of Health Plan Standards & Compliance Assistance HIPAA & other group health laws (202)

48 Compliance Assistance EBSA website: EFAST website: Publications: Technical Assistance (Toll free number): EFAST Hotline (Toll free number): (Go EFAST)

49 Compliance Assistance Regional Offices

50 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 Selecting & Monitoring Pension Consultants Tips for Plan Fiduciaries Tips for Selecting and Monitoring Service Providers for Your Employee Benefit Plan