Enforcement Manual
Enforcement Manual
CERTIFIED MAIL, RETURN RECEIPT REQUESTED
PWBA Case No. ________________________
Dear Mr./Ms.:
As I pointed out in my previous letter dated ______, the Department of Labor (the Department) has responsibility for the enforcement of Title I of the Employee Retirement Income Security Act of 1974 (ERISA). Title I establishes standards governing the operation of employee benefit plans such as the ________________ Plan (the Plan).
As noted in the letter of (date), this office has concluded its investigation of the Plan and of your activities as _____________________. Based on the facts gathered during that investigation, we have concluded that, as _____________, you violated your fiduciary obligations to the Plan and violated several provisions of ERISA. The specific actions taken by you that violated ERISA were detailed in my previous letter, a copy of which is enclosed and incorporated herein.
My previous letter offered you an opportunity to obtain a release from certain further action, other than the imposition of the civil penalty required by ERISA section 502(l), by correcting the ERISA violation(s) and restoring losses to the plan. Based on your letter dated _______, [if applicable] we understand that you have taken such action in response to this offer. Specifically, you [detail actions taken].
Because you have taken the agreed-upon corrective action with respect to the specific violations detailed in my letter of (date), the Department will take no further action with respect to these matters, except the imposition of the civil penalty as required by ERISA section 502(l).
ERISA section 502(l) requires the Secretary of Labor to assess a civil penalty against a fiduciary who breaches a fiduciary responsibility under, or commits any other violation of, part 4 of Title I of ERISA or any other person who knowingly participates in such breach or violation. The penalty under section 502(l) is equal to 20 percent of the applicable recovery amount.
We have determined that the applicable recovery amount is $______________, which was paid on ______. Based on the authority granted to the Secretary under section 502(l) of ERISA and the regulations thereunder, PWBA is assessing a civil penalty of $_____________ against you. Please be advised that the payment of this civil penalty is an expense that is not tax- deductible under federal tax laws (26 U.S.C. 162(f)). If you want further information, please contact the Internal Revenue Service at 1-800-829-1040.
You have 60 calendar days from the date of this notice of assessment to pay the assessed amount. At any time prior to the expiration of that 60 day period, you may submit a written request for a conference to discuss the calculation of the assessed penalty. The 60 day payment period will not, however, be tolled upon such request.
At any time prior to the expiration of the 60 day period, you may petition the Secretary to waive or reduce the assessed penalty, as explained in the attachment "Procedures Under ERISA Section 502(l)". If a petition for waiver or reduction is submitted during the 60 day payment period, the payment period for the penalty will be tolled pending Departmental consideration of the petition. The petition should be mailed to the following address:
Regional Director
Address
If you determine not to contest this matter, the payment should be remitted by check or money order in the amount of $_________ payable to the United States Department of Labor. The check should be mailed to the following address:
U.S. Department of Labor
ERISA Civil Penalty Collections P.O. Box 100240 Atlanta, Georgia 30384-0240
To ensure correct processing of this payment, please include the PWBA Case Number (listed at the top of this letter) on the front of your check, as well as a copy of this letter. You should also notify me that you have paid the civil penalty so that we may close our case.
[Please also be advised that pursuant to section 3003(c) of ERISA, the Secretary of Labor is required to transmit to the Secretary of the Treasury information indicating that a prohibited transaction has occurred. Accordingly, this matter will also be referred to the Internal Revenue Service. The penalty assessed under ERISA section 502(l) will be reduced by the amount of any tax imposed with respect to such transaction under section 4975 of the Internal Revenue Code, as further explained in the attachment "Procedures Under ERISA Section 502(l)".]3
Sincerely,
Regional Director
Enclosures: Letter dated ______ from Regional Director to
_______________ (voluntary compliance notice
letter)
"Procedures Under ERISA Section 502(l)"
bcc: OE, OPPEM
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A. THE CIVIL PENALTY UNDER ERISA SECTION 502(l)
Section 502(l) of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1132(l), requires the Secretary of Labor to assess a civil penalty against a fiduciary who breaches a fiduciary responsibility under, or commits any other violation of, part 4 of Title I of ERISA or any other person who knowingly participates in such breach or violation. The penalty under section 502(l) is equal to 20 percent of the applicable recovery amount.
In this regard, the Secretary of Labor has delegated to PWBA most of the Secretary's responsibilities under ERISA.
An interim regulation implementing section 502(l) was published effective June 20, 1990 [55 Fed. Reg. 25,284 (1990) (to be codified at 29 C.F.R. Part 2570)]. In addition, a proposed substantive regulation has been published for notice and comment [55 Fed. Reg. 25,288 (1990) (to be codified at 29 C.F.R. Part 2560)].
B. HOW TO PETITION FOR WAIVER OR REDUCTION OF THE CIVIL PENALTY
1. Your Petition
You will receive a notice of assessment of the 502(l) civil penalty in the form of a letter from PWBA. You have 60 calendar days from the date of the notice of assessment to pay the assessed civil penalty. At any time prior to the expiration of the 60 day period, you may petition the Secretary to waive or reduce the assessed penalty, as provided in the statute, on the basis that: (1) you acted reasonably and in good faith in engaging in the breach or violation; or (2) you will not be able to restore all losses to the plan or any participant or beneficiary of such plan without severe financial hardship unless such waiver or reduction is granted. A petition to waive or reduce must be in writing and must contain the following information:
(1) The name of the petitioner;
(2) A detailed description of the breach or violation which is the subject of the penalty;
(3) A detailed recitation of the facts which support one, or both, of the bases for waiver or reduction, accompanied by underlying documentation supporting such factual allegations;
(4) A declaration, signed and dated by the petitioner(s), in the following form: Under penalty of perjury, I declare that, to the best of my knowledge and belief, the representations made in this petition are true and correct.
If your petition is based, in whole or in part, on financial hardship, it would be helpful in the consideration of your petition if you would provide financial information such as your Federal income tax returns for the last two years and a notarized financial statement.
As a general matter, in determining whether a fiduciary or knowing participant acted reasonably and in good faith, PWBA will examine the decision making process with respect to the transaction in question to determine whether it was designed to adequately safeguard the interest of the participants and beneficiaries of the plan. In the absence of such decision making process, actual favorable investment return to the plan will not provide a sufficient showing that a person acted reasonably and in good faith with regard to a particular transaction. You may wish to refer to ERISA Technical Release Number 85-1 for general guidelines concerning the Department's previously-articulated views concerning evidence of good faith.
This release can be found in the current edition of Prentice- Hall's Pension and Profit Sharing looseleaf service, paragraph 110,735.
2. How Your Petition is Processed
If your petition for waiver or reduction is based on financial hardship, a determination of whether to reduce or waive the penalty on this basis will be made by the PWBA Regional Director who originally assessed the civil penalty. If your petition is based on good faith, the Regional Director will forward your petition to PWBA's Office of Exemption Determinations in Washington, D.C., where the decision will be made whether to reduce or waive the penalty on the basis of good faith. If your petition is based both on financial hardship and good faith, your petition will first be considered by the Regional Director, and will be forwarded to the Office of Exemption Determination only if the petition is denied on the basis of financial hardship.
Should a decision be made to deny either petition, in whole or part, you are entitled to a conference with the Department to discuss the factual allegations contained in each petition. Any additional conferences, however, are at the discretion of the Department.
You will be served with a written determination informing you of the decision made on your petition. This written determination will briefly state the grounds for the decision. As provided in ERISA section 502(l), this decision is final and neither reviewable nor appealable. In the case of a determination not to waive, the payment period for the penalty will resume as of the date of service of the written determination.
C. EXCISE TAX UNDER INTERNAL REVENUE CODE 4975
1. What is the Excise Tax?
When Congress enacted ERISA, it added section 4975 to the Internal Revenue Code of 1954, which imposes an excise tax on disqualified persons (generally, the same as parties in interest under Title I of ERISA) who engage in prohibited transactions with employee retirement benefit plans. In general, this excise tax, which is administered and enforced by the Internal Revenue Service, is applicable in two steps--a first level tax equal to five percent of the amount involved in the transaction for each taxable year during which the transaction is outstanding and a second level tax, equal to 100 percent of the amount involved if the transaction is not corrected. The excise tax is paid concurrently with the filing of a Form 5330 (Form and Instructions attached).
2. Offset Procedures
Any penalty assessed under ERISA section 502(l) with regard to any particular transaction will be reduced by the amount of any excise tax paid by you with respect to such transaction under section 4975 of the Internal Revenue Code, exclusive of any interest or penalties paid thereon. Prior to such a reduction, you must provide proof to PWBA of your payment of the excise tax and the amount of such payment. The offset applies only to payments actually made, and does not apply to mere assessments; thus, submissions of proof of your tax assessment will not toll the 60-day payment period for ERISA section 502(l).
If, based on information gained through submission of proof of excise tax payment, PWBA determines that a previously issued notice of assessment should be revised, PWBA will issue a revised notice of assessment, and you will be obligated to pay the revised assessed penalty within the relevant 60 day period and, where necessary, any excess penalty payment will be refunded as soon as administratively feasible.
D. THE CIVIL PENALTY UNDER ERISA SECTION 502(i)
1. What is the Civil Penalty Under ERISA Section 502(i)?
Section 502(i) of ERISA authorizes the Secretary of Labor to impose upon a party in interest a civil penalty of 5 percent of the amount involved in connection with a prohibited transaction with a health and welfare plan or a non-qualified pension plan. If the prohibited transaction is not corrected within 90 days, a penalty of 100 percent may be imposed.
2. Offset Procedures
Any penalty assessed under ERISA section 502(l) with regard to any particular transaction will be reduced by the amount of any penalty paid by you with respect to such transaction under ERISA section 502(i). Prior to such a reduction, you must provide proof to PWBA of your payment of the penalty and the amount of such payment. The offset applies only to payments actually made, and does not apply to mere assessments; thus, submissions of proof of your penalty assessment will not toll the 60-day payment period for ERISA section 502(l).
If, based on information gained through submission of proof of penalty payment, PWBA determines that a previously issued notice of assessment should be revised, PWBA will issue a revised notice of assessment, and you will be obligated to pay the revised assessed penalty within the relevant 60 day period and, where necessary, any excess penalty payment will be refunded as soon as administratively feasible.
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3 Include language in brackets when addressee is or represents the disqualified person involved in the prohibited transaction.