Media Release

Release Date: 12/01/1999
Release Number: 00-04
Contact Name: Gloria Della
Phone Number: 202.219.8921

Labor Department Proposes Rules to Improve Security Of Small Pension Plan Assets

The Labor Department’s Pension and Welfare Benefits Administration today published a notice of proposed rulemaking to improve the security of more than $300 billion in assets held in private-sector pension plans maintained by small businesses.

In recent years, considerable public attention has focused on the potential vulnerability of small plans to fraud and abuse. A widely publicized case involved theft of more than $1 million from the Emergi-Lite, Inc. retirement plan by the plan’s third party administrator.

Emergi-Lite reported the theft to the department, which conducted civil and criminal investigations and expeditiously referred its case for criminal prosecution to the U. S. Attorney’s Office in Hartford. The investigation disclosed that Gary Moore, the plan’s third party administrator, had embezzled over $1 million from the plan and concealed the theft. Moore was convicted in June 1998 and is serving a prison term for stealing the 401(k) assets. Approximately $2.5 million was recovered for the former employees as a result of Labor Department investigations.

“Workers in small pension plans need even stronger protections to assure that the money in their retirement plans doesn’t become phantom investments,” said Secretary of Labor Alexis M. Herman. “Our proposed rule will close up a security gap in federal law by increasing supervision of small plans’ retirement money and giving workers more information on the investment of that money.”

Herman thanked Congressman Sam Gejdenson for his leadership. She said, “His dedication has helped restore retirement security for the Emergi-Lite workers. He has championed efforts on behalf of workers and helped to shape additional protections we are proposing for millions of workers around the country."

Although such circumstances are rare, the department decided it was appropriate to propose steps now to strengthen the security of pension assets and the accountability of persons handling those assets.

Currently, pension plans with less than 100 participants are exempt from the requirement to have an independent qualified public accountant conduct an annual audit of the plan’s financial statements. The proposed rule would add new conditions to the audit waiver.

Under the proposal, small pension plans would not be required to have an annual audit if they:

• hold at least 95% of plan assets with certain regulated financial institutions -- such as banks, mutual funds, insurance companies or registered broker-dealers -- or obtain additional fidelity bonding where 95% of the assets are not held with regulated financial institutions;

• disclose in the summary annual report (SAR) furnished to participants each year the names of the financial institutions holding plan assets and the amounts held and the name of the surety companies issuing the fidelity bonds; and,

• include in the SAR a notice informing participants and beneficiaries of their right to review or receive free of charge copies of asset statements of institutions holding plan assets and evidence of any required bond as well as a notice of their right to contact the department if the statements or evidence of bonding are not made available.

Written comments on the proposal should be submitted to the Office of Regulations and Interpretations, Room N5669, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210, Attention: Small Pension Plan Security Proposal. Public comments will be available for inspection in Room N5638 at the same street address.

U.S. Department of Labor news releases are accessible on the Internet. The information in this news release will be made available in alternate format upon request (large print, Braille, audio tape or disc) from the Central Office for Assistive Services and Technology. Please specify which news release when placing your request. Call 202.693.7773 or TTY 202.693.7775.