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September 10, 2002
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Good morning, Chairman Johnson and Members of the Subcommittee. Thank
you for inviting me here today to share information about the Department’s
role in enforcement and regulation of the Employee Retirement Income Security
Act (ERISA). Over the past 28 years, ERISA has fostered the growth
of a voluntary, employer-based benefits system that provides retirement, health
and other benefits to millions of Americans. I am proud to represent
the Department, the Pension and Welfare Benefits Administration (PWBA), and its
employees, who work diligently to protect the interests of plan participants and
support the growth of our private benefits system.
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My testimony will describe ERISA’s background and regulatory framework; the
Department’s role and success in enforcing the fiduciary provisions of ERISA;
the reporting and disclosure rules under ERISA; compliance assistance for plan
sponsors and service providers; and an overview of the Department’s
participant assistance programs for employees, retirees and their families.
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Before proceeding, however, I want to reaffirm the President’s support for
the “Pension Security Act of 2002” (H.R. 3762) that the House passed on
April 11. As you know, the President announced his “Retirement Security
Plan” in February of this year after forming a task force to analyze the
current pension rules and regulations following the Enron scandal. Indeed,
the bill passed out of this committee included many of the President’s
recommendations. The bill strengthens workers’ ability to manage their
retirement funds more effectively by giving them more freedom to diversify,
increased disclosures, and better access to professional investment advice.
The Administration continues to encourage the Senate to pass this legislation
and provide workers with these additional protections as soon as possible.
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ERISA prescribes uniform minimum standards to ensure the integrity and
fairness of the private employee benefit plan system in the United States.
The law covers most private sector employee benefit plans, both retirement and
health, that are voluntarily established and maintained by an employer, an
employee organization, or both.
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The provisions of Title I of ERISA, which generally are administered by the
Labor Department, were originally enacted to address public and congressional
concern that the existing standards for participation, funding, vesting and
management of plan assets were inadequate. ERISA’s enactment was the
culmination of a long line of legislative proposals concerned with the labor and
tax aspects of employee benefit plans. Since its enactment in 1974,
ERISA has been strengthened and amended to meet the changing retirement and
health care needs of workers, retirees, and their families.
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The broad provisions in Title I protect not only retirement and health
benefits, but other employee benefits as well. The core of Title I of
ERISA consists of provisions that address the conduct of persons (fiduciaries)
who are responsible for operating pension and welfare benefit plans (including
group health plans, life insurance, disability, dental plans, etc.).
Fiduciaries are required to discharge their duties solely in the interest of
plan participants and beneficiaries for the exclusive purpose of providing
benefits, and defray reasonable expenses of plan administration. In
discharging their duties, fiduciaries must act prudently and in accordance with
the documents governing the plan, to the extent such documents are consistent
with ERISA. Certain transactions between an employee benefit plan and
"parties in interest," including fiduciaries and others who may be in
a position to exercise improper influence over the plan, are prohibited by ERISA.
If a fiduciary’s conduct fails to meet ERISA’s standards, the fiduciary is
personally liable for plan losses attributable to such failure.
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The Department’s Pension and Welfare Benefits Administration (PWBA) is
charged with administering and enforcing this statute, together with the
Treasury Department, which is generally responsible for the tax provisions in
ERISA, and the Pension Benefit Guaranty Corporation (PBGC), which provides
insurance to protect the retirement benefits of participants in defined benefit
plans when the corporate plan sponsor fails and the plan is inadequately funded.
ERISA governs approximately 730,000 private pension plans and six million
private health and welfare plans. These plans cover approximately 150 million
workers and their dependents and hold assets of more than $4.6 trillion.
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PWBA’s top priority is to ensure that pension and health plans are operated
in accordance with the law. PWBA administers a multi-faceted program that
includes education, outreach, and individual assistance for plan participants,
backed by strong enforcement.
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ERISA provides the Secretary with substantial authority to interpret and
enforce its provisions. The Secretary has the authority to conduct
investigations and seek appropriate remedies to correct violations of the law.
PWBA’s jurisdiction extends to both the civil and criminal provisions of
federal law relating to both corporate and union sponsored plans. PWBA
regularly works in coordination with other federal and state enforcement
agencies, including the Department’s Office of Inspector General, the Internal
Revenue Service, the Federal Bureau of Investigation, the Securities and
Exchange Commission, the PBGC, the federal banking agencies, state insurance
commissioners and state attorneys general.
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The Secretary of Labor is given broad authority to conduct investigations of
potential violations of ERISA’s provisions under Title I of ERISA. PWBA
conducts investigations through its 10 regional offices and 5 district offices
located in major cities around the country.(1)
Under the leadership of its Regional Director, the investigative staff in each
of PWBA’s field offices conducts investigations to detect and correct
violations of Title I of ERISA and related criminal laws. The Regional
Directors report to PWBA’s Deputy Assistant Secretary for Program Operations
through the Office of Enforcement in Washington, which is responsible for
coordinating the agency’s enforcement activities. In FY 2003, PWBA will
devote $93.2 million or 79% of its $120 million budget to enforcement. Of
our 861 staff, 502 are investigators. There are an additional 108 Benefit
Advisors who assist the public with individual benefit disputes. This
direct interaction with the public is one of our best sources of investigations.
The Solicitor’s Office, a separate agency within the Department of Labor that
provides the legal representation for the entire Department, provides litigation
and other legal support with their national and regional offices. The
Solicitor’s Office has about 74 attorneys devoted to ERISA in the national
office and the regions at this time.
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PWBA field offices manage their investigative activity within broad
guidelines identified by the agency’s Strategic Enforcement Plan (StEP), and
generally exercise broad discretion in determining when investigations are to be
opened and which entities or individuals are to be investigated.
Investigations are identified through a variety of sources, including complaints
from participants or others, referrals from the national office or other
government agencies, computer targeting, reviews of the Form 5500 annual report,
and media reports. PWBA’s primary goal in its investigations is to
determine if violations of the law occurred, and if so, restore any plan
benefits and assets to the plan and its participants that were lost. We
also seek to ensure the future security of the plan.
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As a general rule, a significant percentage of each region’s investigations
is directed to larger plans; however, investigations of plans with fewer than
100 participants are often appropriate, particularly where mishandling of
employee contributions to 401(k) plans is alleged or where the plan is abandoned
or adversely affected by bankruptcy of the plan sponsor. Regions also seek
to cover their entire geographic jurisdiction and review the full range of
potential violations contemplated by ERISA.
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The type of records examined during the investigation varies depending on the
nature of the case and the issues identified. Records are requested at the
outset of the investigation and are generally identified in a letter sent to the
Plan Administrator. For example, all plan records relating to the
maintenance of the plans are reviewed, including the plan document, trust
agreement, collective bargaining agreement (if any), summary plan description,
summary annual report, 5500s, fidelity bond, and plan financial records.
In addition, depending on the type of plan and the reason for the case opening,
written and electronic records specific to a particular issue are requested.
PWBA has broad authority to issue administrative subpoenas to compel the
production of documents or testimony.
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The amount of time it takes to complete an investigation varies widely,
depending on the complexity of the issues, the size of the plan, the cooperation
of the parties, and other factors. An investigation may be completed in a
few weeks or, if contentious litigation is involved, may last several years.
Procedurally, when violations are detected, the Regional Director will determine
whether to pursue corrective action through Voluntary Compliance (VC). If so,
the region will issue a VC notice letter that advises plan fiduciaries or other
responsible parties of the results of the investigation and the sections of
ERISA violated and invites the recipients to discuss how the violation will be
corrected and losses restored to the plan. In the alternative, where
settlement efforts have failed, or complex or novel issues are involved, cases
may be forwarded to the appropriate Solicitor’s Office with a recommendation
that litigation be initiated.
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Each PWBA field office coordinates civil investigations and case referrals
with its local Regional Solicitor’s Office or with the Plan Benefits Security
Division of the Solicitor’s Office in Washington, D.C. In cases where
voluntary compliance efforts have failed to obtain appropriate correction, an
investigation will be referred to the appropriate Solicitor’s Office with a
recommendation that litigation be initiated.
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In FY 2001, PWBA opened 4,862 civil cases and closed 4,762 civil cases.
This is an increase of 407 civil cases opened and 545 civil cases closed over FY
2000. Over 57% of civil cases closed (or 2,724 civil cases) were closed
with results during FY 2001). During that year, PWBA made 109 referrals to
the Solicitors Office for litigation. After a referral for litigation is
made, we are often successful in obtaining voluntary compliance, so some of
these referrals will not result in contested litigation. In FY 2001,
litigation was filed on 73 cases, an increase of 12 filings over the prior
fiscal year.
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In FY 2001, there were 124 criminal cases opened and 143 criminal cases
closed. Eighty-seven individuals were indicted in connected with PWBA’s
criminal investigations during the fiscal year. Forty-nine criminal cases
were closed with convictions/guilty pleas during FY 2001, and an additional 15
criminal cases were closed with other restitution or sentencing results.
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The financial impact of PWBA’s investigations on plans and participants is
impressive. Total monetary recoveries for all investigations in FY 2001
were $652.4 million. These recoveries include the value of corrective
actions which PWBA obtained to correct prohibited transactions (nearly $330
million returned to plans), money restored to the plan or plan participants to
correct losses resulting from a fiduciary breach ($139 million), assets which
were protected from significant risk by PWBA intervention which resulted in
securing appropriate safeguards to protect the plan assets and reduce the risk
of future losses ($114 million), and benefits recovered on behalf of individual
plan participants (nearly $69 million).
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Under the Comprehensive Crime Control Act of 1984, the Secretary of Labor is
given responsibility to enforce the criminal provisions of ERISA and Title 18 of
the United States Code that relate to employee benefit plans. To fulfill that
responsibility, PWBA conducts criminal investigations as part of its enforcement
program. Field managers consult with local U.S. Attorneys as early as
possible in a criminal investigation to determine whether there is prosecutorial
interest in the case and to receive any necessary direction.
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PWBA’s investigators evaluate the facts of every case for possible criminal
violations. Many of our civil investigations turn into criminal
investigations when facts indicating possible criminal misconduct are uncovered
and we refer the case to the appropriate U.S. Attorney for consideration of
criminal prosecution. Some cases are referred to state and local authorities for
criminal prosecution. In some instances, a civil and criminal investigation will
be conducted at the same time using separate field investigators and supervisory
oversight. In other instances, the investigation will be conducted as a criminal
investigation only.
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Since October 1990, PWBA has closed over 1,200 criminal investigations that
have resulted in over 1,000 indictments of individuals and 676 pleas and
convictions. PWBA dedicates approximately 15% of its investigative resources to
criminal cases that cover a broad range of entities, including 401(k) plans,
union sponsored employee benefit plans, Multiple Employer Welfare Arrangement (MEWA) cases and other health plans.
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PWBA’s criminal investigations are often worked jointly with agents from
the OIG, FBI, IRS, Postal Inspection Service and the Office of Labor Management
Standards in the Department’s Employment Standards Administration. The
types of investigations cover a wide variety of pension and health plans and
also include service providers such as investment managers and third party
administrators.
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PWBA has a strong track record in protecting employee benefits through the
identification, correction, and deterrence of violations. This has been
accomplished in the face of limited resources, multiple priorities, expanded
responsibilities, and growing sophistication in the marketplace. PWBA’s
Strategic Enforcement Plan (StEP), which was published in the Federal Register
on April 6, 2000, establishes a general framework to focus PWBA’s enforcement
resources on achieving the agency’s policy and operational objectives as
efficiently and effectively as possible.
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The StEP assists PWBA in leveraging its enforcement resources by emphasizing
targeting, the protection of at-risk populations, and deterrence.
Targeting allows PWBA to focus its resources on issues and individuals where the
most serious potential for ERISA violations exists and on situations that
present the greatest potential for harm. PWBA emphasizes the protection of
at-risk populations by seeking to identify situations and to apply enforcement
resources where there is the greatest danger of harm as a result of violations
of the law. Deterrence is obtained through the continuing effectiveness of
PWBA’s enforcement program.
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The StEP identifies and describes PWBA’s national enforcement priorities
and is used by the Regional Offices in structuring their individual
investigative programs. Under the current StEP, there are three national
investigative priorities: plan service providers, health care plans, and defined
contribution pension plans.
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Investigations of plan service providers offer the opportunity to address
abusive practices that may affect more than one plan. Because such
investigations generally result in larger recoveries for more plans and more
participants, this approach allows PWBA to leverage its resources and obtain the
maximum impact for the benefit of plan participants and beneficiaries.
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Rising health care costs have contributed to a growing incidence of health
care fraud, making the agency’s efforts to ensure the sound management and
administration of ERISA-covered health plans a matter of vital national
importance. PWBA seeks to ensure that participants and beneficiaries are
protected, and has applied substantial resources to addressing abusive practices
that violate ERISA.
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In recent years, there has been tremendous growth of 401(k) and other defined
contribution plans in terms of the number of plans, number of participants, and
amount of assets in these types of plans. This growth and the related
administrative and investment practices which have developed to accommodate
these plans warrant scrutiny to ensure the safety of this large volume of
assets. PWBA has identified defined contribution plans as a national
enforcement priority because the risk of loss in such plans rests entirely on
the plan participants.
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In order to ensure the most effective use of our resources and assure
implementation of the national enforcement priorities, PWBA annually identifies
National Projects that address current issues within the scope of the national
priorities. These projects focus on areas that have been or may become
particularly problematic. The process for determining national enforcement
projects is dynamic. The national projects are reviewed on an annual basis
in order to insure that we continue to appropriately concentrate our efforts.
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PWBA has currently identified five national projects discussed below.
The amount of investigative time required on these national projects depends
upon the targets included in the project and the complexity of the issues
involved.
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Employee
Contributions Project (ECP) -
In 1995, PWBA launched its 401(k) Employee Contribution Enforcement Project
to hold employers accountable for failing to promptly deposit employees’
contributions in the employees’ accounts. These cases were opened under our
civil program. Since 1995, PWBA has also conducted over 200 criminal
investigations involving delinquent employee contribution. Since 1995,
PWBA has obtained 132 indictments of individuals resulting in more than 100
guilty pleas and convictions.
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In some cases, employers do not promptly forward the contributions to the
appropriate funding vehicle; in other cases, the employer simply converts the
contributions to other uses, such as business expenses. Both scenarios may
occur when the employer is having financial problems and turns to the plan for
unlawful financing.
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The ECP has generated considerable attention from Congress, participants,
service providers, and the media. By raising public awareness, the project
has generated an increase in participant complaints that provide extremely
valuable leads. An intended impact of the publicity was to put employers
on notice that the Department would vigorously pursue recoveries of diverted
contributions.
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Examples of ECP cases are:
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Chao v. Gateway Data Sciences Corp: A Phoenix software company and two of its
former executives were ordered to restore more than $180,000 to the Gateway Data
Sciences Corporation 401(k) Plan, according to a settlement agreement and a
consent judgment entered on April 10, 2002, by the United States District Court
in Phoenix.
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The judgment resolved a lawsuit filed by the U.S. Department of Labor on
November 13, 2001, against Gateway Data Sciences Corporation; Michael Gordon,
the company’s former chief executive officer; and Vickie Jarvis, the former
chief financial officer, for violations of ERISA that occurred when Gateway,
Gordon and Jarvis failed to forward contributions withheld from employee
paychecks to the 401(k) Plan, enabling the company to use the funds to pay
operating expenses.
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Under the terms of the judgment, Gateway Data Sciences Corporation, currently
undergoing Chapter 11 bankruptcy reorganization, is to pay $80,972 to the 401(k)
Plan upon confirmation of the reorganization plan. Gordon and Jarvis have
already paid $100,088 to the Plan, none of which was allocated to their
individual accounts. The judgment also bars Gordon and Jarvis from serving
as trustees or fiduciaries to any employee benefit plan.
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U.S. v. Craig Jay Nelson: Craig Nelson pleaded guilty on January 23, 2001, to
unlawfully converting the assets of an employee benefit plan. Nelson
operated a struggling business in Des Moines, Iowa, called Nelson Development
Services, Inc., that was in the business of installing sewer mains and water and
sewer lines. From 1993-1999, he failed to deposit $35,000 to $40,000 into
the plan despite the fact that these amounts were withheld from the employees’
paychecks. He also converted almost $15,000 of 401(k) money belonging to
an employee. He used this money to try to keep his company afloat.
He was sentenced to 3 months in a halfway house, 3 months home confinement, a
$2,000 fine, and 3 years probation. He was ordered to make restitution in
the amount of $62,400.
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U.S. v. McCarthy: Robert J. McCarthy, majority owner of Lloyd’s Shopping
Centers, Inc., Middletown, New York, was sentenced on September 13, 2000 to 6.2
years imprisonment and ordered to make restitution of $1.6 million. The
company has replenished the stolen 401(k) funds.
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McCarthy owned a business that provided accounting and other financial
services. When Lloyd’s filed for Chapter 11 in December 1992, McCarthy
was retained by Lloyd’s to assist in the bankruptcy reorganization. This
allowed McCarthy to gain control of the company in 1994. After that,
through a series of transactions, he looted the plan accounts.
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McCarthy was found guilty on October 13, 1999 by a federal jury for his role
in the embezzlement of $2,107,000 from the Lloyd’s Pension Plan and the 401(k)
Saving Plan. He was charged on December 18, 1998 with the embezzlement.
The 401(k) plan suffered a loss of $650,000. It covered 288 participants.
The pension plan covered 311 participants. McCarthy was also charged with
laundering of monetary instruments, engaging in illegal monetary transactions,
conspiracy to create false ERISA documents, and embezzlement of bankruptcy
assets.
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The false record conviction resulted from his distribution and maintenance of
false earning statements to the participants of the 401(k) plan. At
trial, Lloyd employees testified that in response to inquiries, McCarthy falsely
told them that their retirement savings had been moved into new funds where they
were making higher earnings. McCarthy’s theft left both funds
effectively bankrupt. This case was jointly investigated by the PWBA, OIG
and the IRS.
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Rapid ERISA Action Team
(REACT) -
The Rapid ERISA Action Team (REACT) enforcement program is designed to assist
vulnerable workers who are potentially exposed to the greatest risk of loss,
such as when their employer has filed for bankruptcy. The new REACT
initiative enables PWBA to respond in an expedited manner to protect the rights
and benefits of plan participants. Since introduction of the REACT program
in FY 2001, we have initiated over 800 REACT investigations and protected
approximately $49 million in plan assets.
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Under REACT, PWBA reviews the company’s benefit plans and the rules that
govern them, and takes immediate action to secure the plan’s assets. We also
advise those affected by the bankruptcy filing, and provide rapid assistance in
filing proofs of claim to protect the plans, the participants, and the
beneficiaries. PWBA investigates the conduct of the responsible
fiduciaries and evaluates whether a lawsuit should be filed to recover plan
losses and secure benefits.
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An example of a successful REACT case is:
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DataProfit Corporation 401(k) Profit Sharing Plan in Holyoke, Massachusetts
in which the Secretary filed an adversary proceeding against a fiduciary of the
DataProfit Corporation 401(k) Profit Sharing Plan, in his Chapter 7 bankruptcy
proceeding. The complaint asserted that the fiduciary had breached his
duties and sought an order stating that certain debts that arose from the
fiduciary’s embezzlement were nondischargeable. On November 6, 2001, the
Secretary filed a complaint based on the same allegations seeking monetary
damages from the fiduciary. At the same time, PWBA assisted the Bankruptcy
Trustee in obtaining a recovery for the Plan on its fidelity bond. On
February 22, 2002, consent judgments were executed ordering the fiduciary to pay
restitution totaling $43,000 to five participants and was permanently enjoined
from acting in a fiduciary capacity.
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Orphan
Plans -
The Orphan Plans project began in FY 2000 to deal with situations where plans
have been abandoned by plan sponsors and fiduciaries, or fiduciaries have
abdicated their responsibilities as a result of death, neglect, bankruptcy, or
incarceration. The project is part of the agency’s enforcement strategy to
protect at-risk populations.
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In PWBA’s FY 2002 budget, $500,000 was earmarked to pay the costs
associated with the hiring of independent fiduciaries to accomplish the
administration and termination of orphan plans where the asset base of the plan
is insufficient to allow the plan to bear these expenses without causing
substantial reductions in individual account balances. PWBA is also
working closely with the Internal Revenue Service to assist both individuals and
financial institutions who have found themselves to be de facto caretakers of
orphan plans by providing a streamlined process to terminate the plan and
distribute assets to the participants.
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The objectives of the project are to: 1) locate orphan plans which have
been abandoned by fiduciaries; 2) determine if the fiduciary is available to
make fiduciary decisions such as the termination of the plan and the
distribution of plan assets; 3) require fiduciaries to fulfill their duties,
file appropriate compliance forms, and ensure that proper actions are undertaken
to protect and deliver promised benefits; and 4) where possible, identify and
penalize plan officials that do not fulfill their responsibilities to plan
participants.
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An example of an Orphan case is:
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On May 14, 2001 PWBA succeeded in having a federal court appoint an
independent fiduciary to manage, terminate, and distribute the assets of the
pension plan of the International Brotherhood of Law Enforcement and Security
Officers (IBLESO). The independent fiduciary has full authority to collect
assets owed to the plan, pay benefits to participants, pay creditors and
terminate the plan. The pension plan has been “orphaned” since 1987
after the criminal conviction of its trustees. IBLESO violated ERISA by
leaving the plan without a trustee, failing to appoint successor trustees to
administer the plan, and failing to terminate the plan and distribute its assets
to participants. The plan covered 65 participants and had $235,944.50 in assets.
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Multiple
Employer Welfare Arrangements (MEWAs) -
PWBA continues to focus its enforcement efforts on abusive and fraudulent
MEWAs created by unscrupulous promoters who sell the promise of inexpensive
health benefit insurance, but default on their obligations. MEWAs provide
health benefits to employees of two or more unrelated employers who are not
parties to bona fide collective bargaining agreements. They often provide
lower cost alternatives to individual or single employer health care
arrangements. However, these arrangements sometimes illegitimately seek to avoid
state insurance requirements for reserves, contributions, mandated health
benefits and other requirements applicable to insurance companies, thereby
enabling the MEWA to market health benefits at substantially cheaper rates but
without the protections contemplated by law.
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Regions continue to work closely with their Regional Solicitor’s Offices to
identify those egregious situations where benefits are not being paid and which
require aggressive litigation support, including enforcing subpoenas, obtaining
Temporary Restraining Orders (TROs), appointing independent fiduciaries, and
obtaining injunctive relief. In addition, PWBA works closely with the
National Association of Insurance Commissioners (NAIC) to identify fraudulent
MEWAs.
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To combat MEWA fraud and corruption, PWBA has implemented a two-pronged
approach using its dual enforcement, civil and criminal, authority. The
circumstances of each case determine which way investigations are pursued.
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Most of the criminal MEWA investigations have been jointly conducted with
other agencies including the OIG's Office of Labor Racketeering and Fraud
Investigations, the FBI and the United States Postal Inspection Service.
As with all criminal investigations, MEWA criminal investigations are conducted
in a decentralized fashion, working in coordination with the relevant United
States Attorney's Office. Frequently these investigations employ the use
of search and seizure operations in order to get the records. Such action
includes agencies such as the FBI, OIG and U.S. Postal Inspection Service.
In some instances, evidence of criminal intent is found in fraudulent
solicitations advertising the product mailed to the membership, thus
constituting possible mail fraud violations and the assistance of the Postal
Inspectors is helpful in establishing these types of violations.
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Since October 1990, PWBA has conducted 74 criminal MEWA-related
investigations. Thus far, 84 individuals in 69 cases have been indicted.
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Some examples of our successful MEWA prosecutions are:
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U.S. v. Pereira: Paul Pereira of Fall River, Massachusetts, was sentenced
March 30, 2000, to 24 months imprisonment, 3 years of supervised release, and
ordered to make restitution of $880,746 after being charged on July 21, 1999,
with health care fraud, embezzlement and making false statement relating to a
Federal health program. The defendant established a phony insurance plan called
Ameri-Med and collected premiums through his company. Pereira was not a licensed
insurance carrier, and Ameri-Med was not a licensed insurance product, yet
Pereira sold the Ameri-Med product largely to small businesses and self-employed
individuals throughout Massachusetts, New Hampshire and Rhode Island. In the
scheme, he fraudulently represented 60 Ameri-Med subscribers as his own
employees in an attempt to get legitimate health insurance coverage through Blue
Cross/Blue Shield of Rhode Island.
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Between August 1996 and May 1998, Pereira collected more than $1.6 million in
premiums but only paid $360,000 in claims and diverted more than $900,000 in
premiums to his personal use or to support businesses that he owned. Pereira
pled guilty on January 7, 2000, to health care fraud and to embezzlement from a
health care benefit program. PWBA served as the lead investigative agency on
this case, with assistance from the FBI.
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On December 13, 2001, the court granted the Department’s Motion for a
Temporary Restraining Order, followed by a preliminary injunction, against
Employers Mutual, LLC, an abusive multiple employer welfare arrangement, and
sixteen related associations, and the individuals who operate them.
Employers Mutual offered health benefits in all fifty states and the District of
Columbia.
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Between January and October 2001, these entities collected over $14 million
in employer contributions but used less than $3 million to pay claims.
Nearly fifty percent of the contributions have been diverted to the personal
accounts of the principals and to pay administrative expenses. It is
estimated that there are approximately $4.5 million in unpaid health claims.
The TRO removed the defendants from control of the health plans, appointed an
independent fiduciary to marshal the assets of the plans, and froze defendants'
assets. On April 30, 2002, the court granted the Independent Fiduciary's
motion to put the plans through a quasi-bankruptcy that will provide for an
orderly method of resolving the medical providers’ claims for the money
collected in this case and will protect the plan participants from being pursued
by the providers.
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Of course, the best outcome would be for small businesses to avoid purchasing
health coverage from fraudulent MEWA operators in the first instance. In
an effort to educate small businesses about these risks, Secretary Chao recently
wrote to over 80 business leaders and associations requesting them to distribute
and follow simple tips entitled “How
to Protect Your Employees When Purchasing Health Insurance.” These
tips, drafted by PWBA, encourage small businesses to exercise caution by doing
such things as comparing coverage and costs, checking with state insurance
commissioners, and asking for references of other employers enrolled with a
health provider. Checking such simple information before signing up for
coverage could save a considerable amount of distress later. In her
letter, Secretary Chao reiterated her commitment that the Department will
continue to devote significant resources to enforcing existing health laws and
to work with state insurance departments in vigorously pursuing insurance scams
and risky MEWAs to protect workers and their families.
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At this point, I would like to take a moment to express support for a
proposal that responds to the problem of fraudulent MEWAs. The Department
strongly supports legislation that would allow bona fide associations to sponsor
group health plans under federal jurisdiction. Association Health Plans (AHPs)
would be required to comply with significant financial safeguards to protect
consumers, including maintenance of reserves to pay claims, additional surplus
capital of up to $2 million, stop-loss insurance against unexpectedly high
claims, and indemnification insurance to pay outstanding claims in the event the
AHP becomes insolvent.
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To prevent fraud, AHPs would be limited only to associations that are formed
for purposes other than purchasing health insurance, and they would be
restricted from “cherry picking” good risks. Finally, AHPs would be
subject to federal authority (including ERISA’s fiduciary requirements),
instead of the confusion of federal and state jurisdiction that currently
applies to MEWAs. The Department, through its certification and oversight
of AHPs, will see to it that consumers receive the benefits that they and their
employers have paid for.
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Health
Disclosure and Claims Issues (HDCI) -
Because of the critical importance of health benefits, PWBA has in recent
years devoted substantial enforcement resources to the targeting and
investigation of fiduciary violations, as well as criminal violations, relating
to health benefit plans. PWBA’s role in the health care area has also
expanded as a result of the enactment of health care legislation that includes
regulatory and enforcement requirements. Recently, Congress amended ERISA
to add a new Part 7, that includes provisions of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA), the Newborns’ and
Mothers’ Health Protection Act of 1996 (Newborns’ Act), the Mental Health
Parity Act of 1996 (MHPA), and the Women’s Health and Cancer Rights Act of
1998 (WHCRA). Each law provides new federal protections in the realm of
health care benefits.
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In FY 2001, PWBA initiated a special project focusing on health disclosure
and claims issues (the HDCI project). The HDCI project was initiated to
establish a statistically valid baseline of compliance with the new requirements
under Part 7 of ERISA. During this project, PWBA regional offices
conducted nearly 1,300 investigations. The results of these cases are
still being analyzed, but when completed we will have a clearer picture of the
state of overall compliance with these new laws and specific information about
areas that will need special enforcement and compliance assistance attention.
Overall, when violations were detected as part of the HDCI project, PWBA
investigators were generally able to secure voluntary compliance with the law
through their compliance assistance efforts with plan administrators, insurance
companies, and other relevant entities. In addition to ensuring
corrections on behalf of individual participants and plans, PWBA has had a
broader impact on the industry itself by causing large, third party institutions
to modify their contracts or plan documents for all of their clients, thus
positively affecting numerous plans which were not the original subject of a
PWBA investigation.
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Labor intensive cases that involve complex facts and sophisticated
transactions have been and will continue to be an important part of PWBA’s
investigation program, challenging the technical and managerial skills of PWBA
staff. Cases involving complex issues such as those surrounding
investments in employer securities are becoming more common. Cases dealing
with sophisticated investments by multi-employer plans also are particularly
challenging and require major resource commitments.
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Examples of some of our more complex cases include:
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Enron Corporation: PWBA’s Dallas region opened its investigation of Enron Corporation’s
employee benefits plans on November 16, 2001, prior to bankruptcy filing based
on information reported in the media concerning financial difficulties of the
company. The Department also teamed up with the Texas Workforce Commission
to help workers who were laid off in the wake of Enron’s sudden December 2,
2001 bankruptcy. PWBA is currently examining Enron’s employee benefits
plans to determine if there have been any violations of ERISA in connection with
the plans’ investments in Enron stock. On February 12, 2002, the
Secretary announced that the Department succeeded in negotiating an agreement to
appoint an independent fiduciary, State Street Global Investors, to replace the
Enron Corporation’s Administrative Committees, whose members were Enron
officials and served as fiduciaries of the company’s three retirement plans.
The investigation, which was opened under the REACT program, is continuing.
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On August 30, 2002, Secretary Chao filed a "friend of the court"
brief in federal district court in Houston, arguing that the court should not
dismiss a private class action lawsuit filed by current and former Enron
employees. The private lawsuit contends that Enron and a number of its
senior officials and others violated ERISA in failing to protect their
retirement plans, which were heavily invested in Enron stock, from the loss of
millions of dollars when the company collapsed last year.
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Without prejudging the facts (which are still in dispute), the Secretary's
brief makes a number of important legal points: (1) fiduciaries responsible for
monitoring the Administrative Committee, which had direct responsibility for
protecting the plans' assets, have a duty under ERISA to ensure that the
Administrative Committee was properly performing its duties, and that it had the
tools and the information necessary to do so; (2) fiduciaries may not deceive
plan participants or allow others to do so, and thus have the obligation to take
appropriate action to protect plan assets where financial misstatements threaten
the kind of injury at issue in the Enron case, which may include investigating,
disclosing the true facts, and stopping further investment in company stock, as
prudence would dictate; (3) even if the fiduciaries had "inside
information" about the true value and vulnerability of the company stock,
nothing in the federal securities laws would have prevented them from taking
some action as ERISA fiduciaries to protect the plans, which could have included
a public disclosure of the true facts, a decision to suspend further purchases
of the stock, or a disclosure to the appropriate regulatory agencies; (4)
fiduciaries have an obligation to ensure that investments in employer stock,
whether in a 401(k) plan or an Employee Stock Option Plan, are prudent,
notwithstanding plan provisions that contemplate or favor such investments in
employer stock; (5) directed trustees cannot follow directions that they
know or, because of "red flags," should know are imprudent or
otherwise violate ERISA; (6) the participants may recover monetary relief if
they can prove that the fiduciaries breached their duties with regard to a cash
balance plan; and (7) even if it is a non-fiduciary, a service provider,
including an accounting firm, may be liable for equitable relief if it knowingly
participated in the fiduciary breaches of others.
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Capital Consultants and Related Litigation: PWBA has conducted both civil and criminal investigations of Capital
Consultants, LLC (“CCL”). The Secretary filed a civil suit on
September 2000 against CCL, an Oregon investment management firm that served
more than 60 ERISA plans in the Pacific Northwest, most of which are
union-sponsored. The ERISA violations arise from CCL’s investment of
plan assets in a series of imprudent loans. Estimated losses to CCL’s
clients total as much as $500 million, with ERISA plans losing at least $285
million. The Secretary reached agreement on an order appointing a receiver
who, to date, has recovered $149 million.
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In addition, settlements totaling $112.85 million have been reached in
private litigation, resolving claims brought by the court-appointed receiver,
trustees of ERISA plans and other investors against parties which provided
services to or had business relationships with Capital Consultants.
Defendants have agreed to pay an additional $15.8 million in private litigation
against the trustees of certain ERISA plans.
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The Secretary filed suit in April 2002 against the trustees of ten
union-sponsored ERISA plans that were among Capital Consultant's larger plan
clients. They are: the Oregon Laborers-Employers Defined Contribution and 401(k)
Plan, its Health and Welfare Plan, and its Pension Trust Fund (Chao v. Abbott);
the Office & Professional Employees International Union Local No. 11, 401(k)
Plan and its Health & Welfare Plan (Chao v. Kirkland); the Idaho Signatory
Employers-Laborers Pension Plan (Chao v. Hazzard); the United Association
Union Local 290 Plumber, Steamfitter and Shipfitter Industry Pension Plan (Chao
v. Fullman); and the Eighth District Electrical Pension Fund, its Benefit Fund
and the Electrical Industry Benefit Vacation and Paid Holiday Fund (Chao
v. Legino).
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The principal allegation against the trustees is that they violated ERISA's
requirement of prudence by authorizing Capital Consultants' investment of plan
assets in collateralized mortgage obligations and failing to monitor Capital
Consultants' performance of its obligations. The Secretary's cases resulted in
consent orders imposing relief that will provide long-term benefits to plan
participants and beneficiaries. The consent orders, which have been
approved by the court, provide for the resignation of 23 trustees and
permanently enjoin 27 trustees (including one who resigned in 1998) from serving
as ERISA fiduciaries or service providers. They also provide for plan
reforms, including internal controls and procedures relating to plan
investments. The Secretary continues to investigate the trustees of other
ERISA plans that invested with CCL.
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In addition, PWBA and OIG conducted a criminal investigation of Capital
Consultants. On April 23, 2002, Jeffrey Grayson pleaded guilty to mail
fraud and aiding in the preparation of a false tax return. Grayson was a
principal owner of Capital Consultants. Grayson admitted that between 1994
and September 2000 he engaged in a scheme to defray Capital Consultant’s
clients, mostly union pension plans and benefit plans. Grayson admitted to
receiving financial benefits in connection with loans to Wilshire Credit
Corporation (WCC). Between 1994 and 1998, Grayson caused Capital
Consultants to loan approximately $160,000,000 to WCC.
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In another aspect of this investigation, Grayson admitted to advising and
aiding John Abbot, a union trustee, in the filing of a false 1997 individual
federal income tax return. Abbot falsified his return by failing to
disclose approximately $76,000 of gratuities received from Grayson in 1997.
Abbot served as trustee of the Idaho Laborer’s Pension Plan, Oregon
Laborer’s Defined Benefit Plan, Oregon Laborer’s Defined Contribution Plan
and Oregon Laborer’s Health and Welfare Plan. Between 1990 and 1998,
Grayson secretly paid Abbott approximately $200,000 for his continued influence
and access to the union investment boards. Abbot pleaded guilty in
February 2001 to receipt of gratuities, and to filing a false tax return for
failing to report the gratuity income. He was sentenced to 15 months
imprisonment. Two other union trustees pleaded guilty to charges that thy
caused false reports to be filed on behalf of the union funds.
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Most recently additional indictments were returned in the on-going criminal
investigation involving Capital Consultants. On August 21, 2002, Dean
Kirkland, Gary Kirkland and Robert Legino were charged in a 41-count indictment
on charged relating to the giving and receiving of gratuities in connection with
the administration of employee pension benefit plans and welfare benefit plans.
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Dean Kirkland was the principal salesperson for the employee benefit plans of
Capital Consultants. Gary Kirkland, father of Dean Kirkland, was a trustee
of three plan: the 401(k) Retirement Fund of the Office of Professional Employee
International Union (“OPEIU”), Local 11; the Western States Local Union
Trust Fund of the OPEIU; and the Western States Pension Trust, until earlier
this year. Robert Legino, until 2000, was a trustee for the International
Brotherhood of Electrical Workers (“IBEW”) Eighth District Electrical
Pension Fund; The IBEW Eight District Electrical Pension Fund Annuity Plan; and
the Electrical Industry Benefit Vacation and Paid Holiday Fund. All three
have entered not guilty pleas to the August 21 charges.
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Carmelo Sita - U.S. v. Sita: An example of PWBA’s criminal investigation of a union
sponsored plan is our investigation of Carmelo Sita, executive manager of the
Hudson County District Council of Laborers benefit funds. A 59-count indictment
was returned December 10, 2001 charging Sita with conspiracy, employee benefit
plan embezzlement, health care fraud and making or causing false records in
documents required to be kept by ERISA. Sita allegedly embezzled more than $2
million from the funds. Sita was also charged with embezzlement of the union’s
general fund. In addition, if convicted, Sita will be subject to criminal
forfeiture of any and all property derived from the proceeds obtained as a
result of violating the health care embezzlement statute.
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During the period of the alleged violations, Sita served as the business
manager and secretary treasurer for the Hudson County District Council of
Laborers # 16 (Union), headquartered in Jersey City, New Jersey. District
16 is council of local unions of the International Laborers Union of North
America (LIUNA) consisting of Locals 21, 31, 202 and 325, all located in New
Jersey. Sita also served as the Executive Manager for the fringe benefit
plans sponsored by the union. The union represents construction laborers
employed by companies operating in New Jersey. There are approximately
2,000 union members.
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Prosecution is ongoing. The PWBA’s New York Regional Office, the DOL’s
OIG and the FBI jointly investigated this case with significant assistance
provided by PWBA’s Chief Accountant.
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PWBA’s
Office of the Chief Accountant (OCA) is responsible for enforcing ERISA’s
reporting and disclosure provisions. PWBA has developed a set of
traditional and voluntary enforcement initiatives involving civil penalties
imposed against plan administrators for their failure to submit timely,
complete, and accurate Form 5500 Series annual reports with the Department.
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PWBA has established core enforcement programs that target deficient and
non-filers. Deficient filers are identified and selected from the ERISA
Form 5500 Database. Non-filers usually are identified through referrals
from other PWBA offices, the Internal Revenue Service, or computer targeting.
Late filers are identified in large part through computer targeting.
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In FY 2002, PWBA investigated 916 Deficient Filer cases, assessing $1,414,100
in penalties. In FY 2001, there were 98 non-filer cases opened, with PWBA
assessing $6,724,800 in penalties. Also, six late filer cases were opened,
assessing $99,600.
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PWBA maintains an ongoing quality review program for employee benefit plan
audits. This program involves a random selection of plan audits that are
reviewed to ensure that the level and quality of audit work performed supports
the opinion rendered by the Independent Qualified Public Accountant (IQPA) on
the plan's financial statements and that such work is adequately documented in
the IQPA's work papers as required by established professional standards.
For FY 2002, PWBA performed 82 on-site reviews and analysis of audit workpapers,
which support the accountant's report. In FY 2003, we plan to conduct a
comprehensive review of employee benefit plan audits. Once the review is
finished, we should have a much clearer picture of the baseline measures of how
plan audits comply with applicable professional standards.
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In addition to our investigators, PWBA has 108 dedicated staff who serve as
Benefits Advisors to assist participants and beneficiaries who are experiencing
a problem with an employee benefit plan. This program has proven to be
very effective in resolving individual participant benefit disputes. Since
1995, Congress has approved incremental increases in PWBA’s number of Benefits
Advisor FTE from 24 to 108 nationwide. As a result, we have been able to
reach more participants and provide more hands-on assistance. Since
1995 the volume of inquiries handled by the Benefits Advisors has increased
nearly 80%. Last year alone, Benefits Advisors handled over 170,000
inquiries and we expect to handle well over 180,000 in 2002.
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Last year our Benefits Advisors recovered over $64 million in benefits on
behalf of participants and beneficiaries through informal resolution of
individual complaints. This represents an increase of over 400% in the
amount of annual dollar recoveries since 1995. Over $250 million has
been recovered in benefit payments by the Benefits Advisors during the last six
years. Although our Benefits Advisors handle the full range of employee
benefit inquiries, the vast majority of monetary recoveries involve pension
benefits. While the Benefits Advisors have been very successful in
assisting individuals in restoring health benefit coverage that had been denied,
through enrollment in COBRA or reinstatement in their employer’s plan, unless
there were unpaid medical bills involved, these type of recoveries can not be
quantified in dollars.
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It is important to note that our Benefits Advisors recover benefits on behalf
of participants and beneficiaries as part of an informal resolution process.
They are often able to resolve disputes and obtain promised benefits on behalf
of a participant or beneficiary by explaining the requirements of ERISA to a
plan administrator or other responsible party. Other times they serve as
an independent source of reliable information about ERISA by answering questions
posed by plan sponsors, plan administrators, and service providers to plans.
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While Benefit Advisors seek the informal resolution of benefit disputes, if
they become aware that repeated complaints have been made with respect to a
particular plan, or when there is information indicating a suspected fiduciary
breach, the matter is referred to the Office of Enforcement for investigation.
Last year, 1,251 investigations were opened as a result of referrals from
Benefits Advisors, which accounts for 25 percent of the 4,862 cases opened.
During the same period, a recovery of nearly $111 million in benefits to
participants resulted from these investigations. Close coordination
between Benefits Advisors and investigative staff enhances PWBA’s ability to
resolve benefit disputes.
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PWBA’s outreach and education activities include a nationwide effort to
assist workers facing job loss. Plant and business closings, downsizings
and reductions in hours affect employees in numerous adverse ways, including
impacting their retirement benefits. Assisting dislocated workers is an
agency priority that PWBA accomplishes through coordinated activities,
including:
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Participating
in nationwide outreach activities, including rapid response activities to
assist workers at their employer’s facility or in their community by
providing answers to questions and distributing PWBA’s publications.
In the first three quarters of FY 2002, PWBA participated in over 693
sessions, reaching over 32,000 workers.
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Assisting
employers by providing information and answering questions in advance of
plant closings.
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Developing
and issuing publications addressing the issues facing dislocated workers in
English and Spanish which are available free of charge.
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Providing
“train-the-trainer” sessions for state agencies and other officials
involved in assisting unemployed workers including congressional staff in
district offices.
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To make it easier for workers and employers to reach PWBA, on February 12, 2001, Secretary Chao announced the activation of a new toll free participant
assistance and compliance assistance number, 1.866.444.3272 (1.866-ASKPWBA).
The toll free number is equipped to accommodate English, Spanish and Mandarin
speaking individuals. In addition the Benefits Advisors have access to a
contracted service that can interpret more than 140 different languages.
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Participants, beneficiaries, plan sponsors and service providers who call
this number are automatically linked to a Benefits Advisor servicing the area
from which they are calling. Use of this toll free number will mean that
persons with questions about pensions or health benefits will quickly be in
contact with a Benefits Advisor who can answer their question.
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In addition, PWBA has improved its internet abilities to accept complaints
and inquiries electronically. The new web site
was launched on Labor Day, 2001, and has handled over 2,300 electronic inquiries
on a wide range of ERISA issues since its inception. Use of the internet has improved our ability to swiftly communicate with our customers.
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In addition to these technology-based activities, PWBA is actively engaged in
more traditional public outreach efforts. PWBA now has over 45 publications
available free of charge through the toll-free number and the agency web site to
assist workers and employers in understanding the federal retirement and health
benefits law. Last year, PWBA distributed 1.1 million copies of these
brochures to participants, beneficiaries, plan sponsors and other interested
parties. Other activities, ranging from publishing contact information about our
Field Offices in local phone books to the placement of public service
announcements in local media, are all intended to help workers know who we are
and how to contact us.
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PWBA frequently hears from participants that we have been able to assist.
Some examples are provided below:
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A women from Draper, Utah wrote a word of thanks to the San Francisco
Regional Office and Benefits Advisor, Greg Wilson for assistance she received in
obtaining a continuation of benefits from her former employer’s health plan:
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“I had to write to tell you this because this is actually the very first
time I have ever been able to even get through to a federal agency of any kind,
never mind actually talking to a real person who had my interests at heart.
I have felt terrible distanced from my national government because of the
immense bureaucracy…And thank you, too, for making your department accessible
and service-oriented to your customers.”
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A participant from Nashville, Tennessee wrote the following:
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“[Benefits Advisor] Gotschall’s intervention on our behalf was invaluable
in resolving a $20,000 dispute we were having with the fiduciary of a 401K plan
from my former employer….We are very thankful to Ms. Gotschall and to the
Department of Labor for being our advocate and helping us get to a successful
conclusion.”
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A participant from Fairfield, California wrote Secretary Chao in March 2002
and stated the following:
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“Just a note to thank you for the excellent and effective assistance that I
received from your Benefits Advisor, Beryl Neurman. I had just lost my
employment due to disability and was left without health insurance and in excess
of $30,000 in medical bills. Beryl made a few calls for me and everything
cleared up in a few days. The bills were paid; my COBRA came through and
even my health has improved. I was worried sick about not being able to
get treatment without a health plan.”
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A participant from Mt. Vernon, New York wrote Secretary Chao and stated the
following:
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“I would like to express my thanks and gratitude to the U.S. Department of
Labor for helping me retain my retirement benefits. . . . Jose Castillo of
the New York Office responded. . . .On March of 2000, I received my initial
benefit and in September 2001 I finally received the balance. Then the
disaster came but I was very thankful to hear from him that he was able to get
out of the building and was safe. Please give him the recognition he
deserves for working on my behalf in a professional and caring manner.”
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A participant from Horsham, Pennsylvania wrote Benefits Advisor, Pam Wilson,
pleased with the assistance she received when she was unable to locate her
former employer or any principle of her pension plan:
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“I am very grateful for your efforts on my behalf, and I commend your
persistence in solving this problem which has lasted for so many, many years.”
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A participant from North Wales, Pennsylvania wrote to the Director of our San
Francisco Regional Office in praise of Benefits Advisor Katherine Era:
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“My family tried to wrestle with the large insurance industry and an old
employer with no resolve. Then came in Ms Era. . . . We are so glad
that your government agency has Katherine and we hope there are more just like
her. I once told Katherine if she ran for Governor of California, that we
would vote for her.”
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A participant from Edison, New Jersey wrote to New York Benefits Advisor Toni
O’Reilly who assisted her in getting payment for $47,993.91 in outstanding
medical claims:
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“Without your intervention, I would still be beating my head against the
wall trying to get these bills paid. I wanted to thank you from the bottom
of my heart. You know how ill I have been throughout this ordeal. I
never would have made it without your help. Thanks for being there when I
needed you.”
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These testimonials demonstrate that PWBA is effectively assisting plan
participants and they are the reason we strongly oppose legislative proposals
that would create a separate Office of Pension Participant Advocacy within the
Department of Labor. The President’ Budget Proposal for FY 2003 requests
$117 million for PWBA. The enhancement is intended for our enforcement
program. The Senate Appropriations Committee would divert $3 million from
our budget request to fund this duplicative office. The creation of this office
would harm participants by siphoning off resources that are needed to support
enforcement efforts and assistance and outreach services to participants and
beneficiaries. This proposal would duplicate services already being
provided by the agency, but without the existing experience and expertise in
providing participant and beneficiary assistance that PWBA has developed over
the years.
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This legislation would hamper PWBA’s existing enforcement structure by
separating our most effective source of investigations from the field office
structure. Further, there would be confusion as to whom participants should
contact for assistance and information. This proposal in unnecessary and harmful
to our ongoing enforcement and participant assistance program.
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Enforcement actions will always be a cornerstone of our mission to assure
benefit security. However, a cooperative approach that encourages the
regulated community to comply with the law in the first instance is also a
critical component of our enforcement program. Compliance assistance is
directed to the vast majority of the regulated community that is law-abiding and
wants to do the right thing. It is an important part of our mission to
assist them in complying with the law. In this regard, we have initiated a
number of assistance programs. These efforts will foster compliance with
the law and protect participants and beneficiaries from losses.
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On March 15, 2000, PWBA published in the Federal Register an innovative
interim program, the Voluntary Fiduciary Correction (VFC) Program. Under
the VFC Program, plan officials who have identified certain violations of part 4
of Title I of ERISA may take corrective action to remedy the breaches and
voluntarily report the violations to PWBA, without becoming the subject of a
PWBA enforcement action. This program was expanded and improved, effective
April 29, 2002, when PWBA published the final VFC Program. The expanded
VFC Program provides significant additional incentives for fiduciaries and
others to correct certain ERISA violations, by offering excise tax relief in the
form of a class exemption for certain transactions and limiting the requirement
for a general notice. In addition, another transaction was added to the program,
bringing the number of transactions for which relief may be granted to 14, and
the documentation requirements were streamlined. The added incentives in
the final VFC Program will encourage more participation in the program. PWBA
will continue to update and expand the VFC Program as appropriate.
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The Delinquent Filer Voluntary Compliance Program (DFVC) provides plan
administrators the opportunity to file delinquent Form 5500 filings at greatly
reduced civil penalty amounts. This program gives plan administrators who
have become aware of their failure to make the necessary Form 5500 filings the
opportunity to make such filings without incurring significant penalties. In
March 2002, the DFVC program was revised, further reducing the penalties with
the introduction of a per plan cap. The revisions capped the maximum per
plan penalty at $4,000 for large plans and at $1,500 for small plans.
Penalties for small plans sponsored by non-profit 501(c)(3) organizations are
capped at $750. The former penalty structure had no maximum amount.
During the first six months of the revised program, over 2,500 filings have been
received, compared to just 1,400 during the same period in 2001. The
response to these changes has been overwhelmingly positive.
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To assist sponsors of pension and health plans with questions related to
their annual report filings, PWBA has established a toll-free help line.
This “help desk,” which is staffed by both PWBA staff and contractors,
provides the approximately 1.2 million pension and health plan filers with an
opportunity to have their Form 5500 filing questions answered expeditiously.
It also helps filers to quickly determine how they should correct filings that
have failed the Department’s processing edit tests. PWBA’s dedicated EFAST
website is continuously updated to provide the latest information for filers on
the Form 5500 and electronic processing, instructions for filing, frequently
asked questions and a calendar of outreach events we are sponsoring and/or
participating in around the country. The web site also contains a number of
educational materials that were created to assist Form 5500 filers, including
the recently released updated Troubleshooter’s Guide to assist with frequently
asked questions about filing. A companion 15-minute videotape was disseminated
to the plan community highlighting the components of the new filing
requirements.
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PWBA also engages in various outreach and assistance activities to provide
employers, especially small employers, service providers, and other employee
benefits professionals information to assist them in compliance with ERISA and
related regulations.
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Over the last two years, through the Agency’s Health Benefits Education
Campaign, PWBA has conducted compliance assistance seminars, in conjunction with
various State Insurance Commissioners around the country, on HIPAA and other
related health benefits laws. The target audience for these conferences is
small to mid-size employers who are currently offering health insurance to their
employees, third party administrators and insurers. Conferences have been held
in New York, Louisiana, Los Angeles, Ohio, Florida, Kansas, and Arizona and are
scheduled in Vermont, Washington, DC, Nebraska and Arkansas. These
workshops have been well received based on the positive feedback that PWBA has
received.
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In conjunction with these outreach conferences, PWBA has created a compliance
assistance guide to HIPAA and new compliance assistance tools to assist
employers, third party administrators and insurers in identifying common
mistakes and tips on how to comply with HIPAA and other health laws.
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PWBA, PBGC and the Internal Revenue Service are working together to develop a
compact disk (CD) to help small employers set up and operate pension and health
plans consistent with the requirements of ERISA and related health laws.
The CD, which is scheduled for release early next fiscal year, will highlight
the voluntary compliance programs offered by each of the agencies. The
agencies are partnering in outreach as well to highlight these new materials and
provide a one-stop approach to assisting small employers with their questions
about retirement plans. This summer PWBA joined the IRS in six
IRS-sponsored conferences for small employers.
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As mentioned earlier, Secretary Chao recently wrote to over 80 small business
leaders and associations providing some simple tips entitled “How to Protect
Your Employees When Purchasing Health Insurance.” The tips assist small
businesses in avoiding scams when selecting health care providers by doing such
things as comparing coverage and costs, checking with state insurance
commissioners, and asking for references of other employers enrolled with a
health provider.
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As part of its ongoing Retirement Savings Education Campaign, PWBA, the Small
Business Administration, Merrill Lynch and the Chamber of Commerce jointly
developed the web site www.selectaretirementplan.org.
The web site helps small business owners to select the best retirement plan for
their business. Development of the web site is the result of a unique
public/private partnership to reach small business owners with information on
the basics for providing retirement plan coverage for their employees.
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PWBA also participates in a variety of conferences each year sponsored by
organizations such as the American Institute of Certified Public Accountants,
the American Bar Association, the Southeastern & Western Pension
Conferences, Workers in Employee Benefits, the International Foundation of
Employee Benefit Plans, American Benefits Council, American Society of Pension
Actuaries, ERISA Industry Committee, the Consumer Federation of America and
others to update plan officials and practitioners about recent developments in
the employee benefits area.
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Through its enforcement of ERISA, PWBA is responsible for ensuring the
integrity and fairness of the private employee benefit plan system in the United
States, a mission we take very seriously. Recoveries from enforcement
efforts for all investigations in 2001 resulted in total monetary recoveries of
$652.4 million consisting of nearly $330 million in prohibited transactions
corrected, $139 in plan assets restored, and $114 million in future losses.
In addition, our Benefits Advisors recovered another $64 million in benefit
payments for participants as a result of our informal resolution of individual
disputes. As transactions become more sophisticated and complex, we are
committed to providing the most effective technical and human capital resources
needed to protect American workers and their families.
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An increasingly important part of our efforts is our initiative to provide
compliance assistance. When we are successful in increasing voluntary
compliance, violations are avoided altogether or corrected with plan
participants and beneficiaries being made whole. We will continue to
emphasize compliance assistance, but recognize that a strong enforcement program
is necessary to protect workers from abusive practices and to ensure that all
plan sponsors, employers and unions, pay attention to their obligations under
ERISA. We will not hesitate to use all the tools at our disposal to
enhance the health benefits and retirement security of American workers.
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PWBA regional offices are located in
Boston, New York, Philadelphia, Atlanta, Cincinnati, Chicago, Dallas,
Kansas City, San Francisco, and Los Angeles. PWBA district offices are
located in Washington, D.C., Miami, Detroit, St. Louis, and Seattle.
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