The Employee Benefits Security Administration published the Enforcement Manual solely for the internal administrative use of its employees. This manual does not restrict or limit in any way the Employee Benefits Security Administration's discretion in carrying out responsibilities imposed on the Secretary of Labor by the Employee Retirement Income Security Act. Nothing in this manual is intended to be an interpretation of law or regulation or to serve as guidance for persons outside the Department of Labor. Nor does this manual confer on any person, including one who is the subject of an Employee Benefits Security Administration investigation or enforcement action, a right to rely on any policy or procedure stated herein, or otherwise create any other substantive or procedural rights.
- Failing to operate the plan prudently and for the exclusive benefit of participants;
- Using plan assets to benefit certain related parties to the plan, including the plan administrator, the plan sponsor, and parties related to these individuals;
- Failing to properly value plan assets at their current fair market value, or to hold plan assets in trust;
- Failing to follow the terms of the plan (unless inconsistent with ERISA);
- Failing to properly select and monitor service providers;
- Taking any adverse action against an individual for exercising his or her rights under the plan (e.g., being fired, fined, or otherwise being discriminated against);
- Failure to comply with ERISA Part 7 and the Affordable Care Act (welfare plans only).
EBSA also conducts investigations of criminal violations regarding employee benefit plans such as embezzlement, kickbacks, and false statements under Title 18 of the U.S. Criminal Code. Prosecution of these criminal violations is handled by U.S. Attorneys' offices, see Criminal Enforcement News Releases. Title 18 contains three statutes which directly address violations involving employee benefit plans: (1) Theft or Embezzlement from Employee Benefit Plan (18 U.S.C. Section 664); (2) False Statements or Concealment of Facts in Relation to Documents Required by the Employee Retirement Income Security Act of 1974 (18 U.S.C. Section 1027); (3) Offer, Acceptance, or Solicitation to Influence Operations of Employee Benefit Plan (18 U.S.C. Section 1954).
ERISA also contains criminal provisions, including:
- Section 411, Prohibition Against Certain Persons Holding Certain Positions;
- Section 501, Willful Violation of Title I, Part 1;
- Section 511, Coercive Interference. Persons convicted of violations enumerated in section 411 are subject to a bar from holding plan positions or providing services to plans for up to 13 years;
- Section 519, Prohibition on False Statements and Representations. Persons shall not make false statements in connection with the marketing or sale of a Multiple Employer Welfare Arrangements (MEWA).
Decisions to seek criminal action turn on a number of factors, including:
- The egregiousness and magnitude of the violation;
- The desirability and likelihood of incarceration both as a deterrent and as a punishment;
- Whether the case involves a prior ERISA violator.
If an investigation reveals a violation of the civil provisions of ERISA, EBSA takes action to obtain correction of the violation. It is EBSA's policy to promote voluntary compliance with ERISA whenever possible. Making corrections to plans includes paying amounts to restore losses, disgorging profits, ensuring claims are properly processed and paid, and paying penalty amounts (when applicable). Labor Department attorneys work with field offices to provide every opportunity for fiduciaries to comply with ERISA. If the persons involved take the proper corrective action, the Department will not bring a civil lawsuit with regard to the issues involved. When voluntary compliance is not achieved, EBSA may refer a case to Labor Department attorneys for litigation. Plan assets recovered by EBSA go directly back to the plans and participants involved. See the agency's results Fact Sheet for the enforcement accomplishments for the last fiscal year.
Major Case Enforcement Priority – EBSA continues to focus its enforcement resources on areas that have the greatest impact on the protection of plan assets and participants' benefits. In FY 2016, EBSA will remain dedicated to strategically focusing more investigative resources on professional fiduciaries and service providers with responsibility for large amounts of plan assets and the administration of large amounts of plan benefits. This continues to be accomplished by a national enforcement priority that directs investigative resources to the conduct of major cases.
Employee Contributions Initiative – Consistent with its long history of protecting employee contributions to 401(k), health care, and other contributory plans, EBSA designated the investigation of delinquent employee contributions, a previous national project, as a national enforcement priority. For more information, see the Employee Contributions Initiative webpage.
In its continuation of focusing enforcement resources on having the greatest impact on the protection of plan assets and participants' benefits, EBSA has identified certain national enforcement projects in which field offices are to place particular investigative emphasis.
Employee Stock Ownership Plans (ESOPs) - ESOPs are defined contribution plans designed to invest primarily in the stock of the sponsoring employer. ESOPs provide retirement income to employees after the employee leaves the company and provide favorable tax benefits to the sponsors of ESOPs to encourage their formation.
Since 2005, EBSA has maintained an ESOP National Enforcement Project that identifies and corrects violations of ERISA in connection with ESOPs. When an ESOP buys or sells plan sponsor stock, the plan fiduciaries may not pay more than, or sell for less than, the fair market value of the plan sponsor stock. ESOP investigations also concentrate on potential conflicts of interest which may exist in ESOP purchase or sale transactions, particularly when the person transacting with the plan serves in some fiduciary capacity over the plan itself.
In addition, EBSA reviews the continued operation of ESOPs and the duty of fiduciaries to monitor and control wasteful corporate activities and corporate malfeasance, as well as the duty to ensure that participants receive the specific benefits which are due to them under the plan. Finally, EBSA is mindful of the role of institutional trustees who oversee the plan's operations, and the necessity for these trustees to have sound procedures and practices in place, given their control over a large number of plans.
ESOP Appraisal Process Agreements
- GreatBanc Trust Company - Appraisal Guidelines
- First Bankers Trust Services, Inc. – Process Requirements
- James F. Joyner III - Fiduciary Engagements and Process Requirements
- Lubbock National Bank - Fiduciary Engagements and Process Requirements
- Alpha Investment Consulting Group, LLC – Process Requirements
Health Enforcement Initiatives - EBSA is focusing its efforts on returning money to plans and their participants adversely affected by improper administrative practices or the mishandling of plan funds. EBSA continues its ongoing efforts to detect and correct violations found in Part 7 of ERISA. Although the ACA introduced broad reforms, most of Part 7’s protections remain in effect for ERISA plans, such as those contained in the Women’s Health and Cancer Rights Act (ERISA Section 713), the Newborns’ and Mothers’ Health Protection Act (ERISA Section 711), the Mental Health Parity Act and Mental Health Parity and Addiction Equity Act (ERISA Section 712), the Genetic Information and Nondiscrimination Act, and Michelle’s Law (ERISA Section 714). Common issues include proper plan administration, proper claims payment, service provider fees, compliance with claims procedure rules, and compliance with health care laws under Part 7 of ERISA in stated plan terms and operations. Investigations also examine compliance with applicable provisions of the ACA, which includes market reforms, patient protections, extension of dependent coverage, internal claims and appeals and external reviews and grandfathered health plans.
The national initiatives for health enforcement include mental health parity, emergency services, and health service providers’ self-dealing.
- Mental Health Parity - The recent passage of the 21st Cures Act in December 2016 has prompted EBSA to place special emphasis on health plans’ compliance with Mental Health Parity and Addiction Equity Act (MHPAEA) provisions. Specifically, the Act requires the Department to take additional steps to ensure that group health plans are in compliance with mental health and substance use disorder rules. Furthermore, the Commission on Combating Drug Addiction and the Opioid Crisis, established by the President, recommended in its draft interim report that the Department of Labor vigorously enforce MHPAEA. EBSA will continue its enforcement efforts to detect mental health parity noncompliance, as it works to implement the Cures Act requirements. Through its enforcement efforts, EBSA will also focus on evaluating treatment limitations that are imposed on benefits to treat opioid addiction and other substance use disorders. There is also focus on when improper limitations may be imposed on mental health and substance use disorder benefits through noncompliant cost sharing, benefit limitations, or through administrative practices that enforce neutral plan terms such as medical necessity requirements more stringently when applied to mental health and substance abuse disorders.
- Emergency Services - EBSA is also focusing on the coverage of emergency room services where plans and claims administrators have avoided giving full effect to the Affordable Care Act’s (ACA’s) emergency services provisions by denying claims based solely on diagnosis without accounting for a participant’s presenting symptoms, or limiting the coverage of emergency services within a particular timeframe after the onset of symptoms. These cases will also determine if out-of-network claims for emergency services are reimbursed appropriately according to the ACA rules.
- Service Provider Self-Dealing (undisclosed/hidden/excessive fees) - Service providers such as TPAs, insurance companies, and pharmacy benefit managers provide services to group health plans for a fee. Sometimes, these fees or additional hidden costs are not disclosed to the plans in their service contracts or in monthly billing statements. Because the fees are unknown to the plan fiduciaries, the service provider is exercising discretion over plan assets, setting its own compensation and dealing with the plans’ assets for its own gain, a fiduciary breach. EBSA seeks disgorgement of the ill-gotten gains and correct the illegal practices prospectively.
In addition, EBSA is continuing its long-standing efforts to seek out and shut down abusive Multiple Employer Welfare Arrangements (MEWAs) and to proactively identify known fraudulent MEWA operators to ensure they do not terminate one MEWA just to open another in a different state. To assist in these efforts, ACA authorizes the Secretary of Labor to immediately issue a cease and desist order when fraud is apparent. The Secretary may also seize assets from a MEWA when probable cause exists to believe that the plan is in a financially hazardous condition. The final regulations, effective on April 1, 2013, established policies and procedures for the implementation of the cease and desist and summary seizure rules. EBSA also conducts criminal investigations of MEWAs. Criminal MEWAs investigated by EBSA have engaged in a range of crimes, from mail fraud, wire fraud, bankruptcy fraud, to theft. MEWA criminal cases are typically prosecuted by U.S. Attorneys' offices. They have resulted in jail sentences and court ordered restitution against fraudulent MEWA operators.
EBSA also conducts criminal cases aimed at fraud on self-funded health plans by medical providers and other unscrupulous service providers. Health care fraud by medical providers drains assets available to pay benefits and raises the cost of coverage for employees.
Protecting Benefits Distribution (PBD) - Introduced in FY 2018, the PBD focuses on ensuring that participants are paid retirement benefits that remain stagnant and may be at risk due to plan sponsor actions or failures to act. Participant benefits may remain in the plan for years, despite plan document and legal mandates that the benefits be distributed. While participants’ benefits remain in the plan, they are at risk of continuing to have administration fees deducted, being abandoned by defunct plan sponsors, or impacted by the plan sponsor’s bankruptcy or financial distress. PBD investigations focus on ensuring that participant benefits are protected and expeditiously distributed, avoiding losses resulting from languishing plan assets. This newly created project is divided into three components.
- Terminated Vested Participant Project (TVPP)
The TVPP ensures that defined benefit plans maintain adequate records and procedures for contacting terminated participants with vested account balances. These benefits may be at risk of forfeiture upon death or significant tax penalties, if participants are not made aware of their rights and responsibilities with respect to benefit distributions. Terminated participants or their beneficiaries in plans that are missing or lack complete census data may be unable to access their benefits. The TVPP aims to ensure that defined benefit plans maintain up-to-date census records and effectively communicate to terminated vested participants their eligibility to apply for benefit distributions as they near normal retirement age.
- Distressed Plan Sponsors
Previously known as the REACT project, which began in FY 2001, Distressed Plan Sponsors seek to protect participant benefits placed at risk by a plan sponsor’s financial distress, including bankruptcy, state court receivership or the company’s poor financial condition. When a plan sponsor faces financial hardship or bankruptcy, it is common to find employers holding assets which belong to or are owed to plans, occasionally intermingling those assets with the employers' own assets. Prompt investigative efforts mitigate the risk of plan losses caused by diversion, unreasonable expenses, and the untimely pursuit of court processes to claim delinquencies owed to the plan. When a company displays financial distress or declares bankruptcy, EBSA takes immediate action to ascertain whether there are plan contributions which have not been paid to the plans' trust, to advise all affected plans of the bankruptcy filing, to address unpaid health plan claims, and to provide assistance in filing proofs of claim to protect the plans, the participants, and the beneficiaries. EBSA also attempts to identify the assets of the responsible fiduciaries and evaluate whether a lawsuit should be filed against those fiduciaries to ensure that the plans are made whole and the benefits secured.
- Custodial Abandoned Plans
EBSA is also taking a proactive approach to ensure abandoned plans are properly administered or expeditiously wound up. Investigations will also confirm that service providers are not charging abandoned plans unreasonable fees and draining the remaining participants’ accounts. The Custodial Abandoned Plans component of the PBD Project will seek to identify institutions with large number of abandoned plans. Corrective action may include changes to the service provider’s internal procedures to ensure it adequately identifies and handles abandoned plans, consideration of the Abandoned Plan Program, and returning unreasonable fees to affected abandoned plans.
Plan Investment Conflicts – The Plan Investment Conflicts (PIC) project, which began in FY 2016, investigates issues related to fiduciary service provider compensation and conflicts of interest in relation to plan asset vehicles. In addition, the PIC project continues the efforts of prior projects by investigating the receipt of improper or undisclosed compensation and supports the Department’s regulatory and reporting initiatives intended to ensure that plan fiduciaries and participants receive comprehensive disclosure about service provider compensation and conflicts of interest. By way of example, PIC project exams have reviewed conflicts of interest of fiduciary service providers and investment managers of plan asset vehicles that led to conflicted decision making processes, imprudent application of investment guidelines and the payment of excessive fees. The project also continues to examine plan fiduciary due diligence related to investment decisions, service provider selection and valuation preparation. EBSA is also attuned to whether plan fiduciaries are performing their duty to oversee and monitor service provider arrangements, even when no conflict exists. PIC exams also focus on indirect compensation arrangements, conflicted and undisclosed arrangements and arrangements that are outside of market standards. EBSA will conduct criminal investigations of potential fraud, kickback, and embezzlement involving investment managers and advisers to plans and participants.
Contributory Plans Criminal Project (CPCP) – The CPCP began in FY 2010 as EBSA’s first solely national criminal project. In recognition that millions of American workers who share in the costs of employee benefits by contributing to employer-sponsored retirement and health benefit plans are vulnerable to criminal abuse, the CPCP is designed to address the full panoply of criminal violations relating to contributory plans.
There are a number of ways in which contributory plans can be vulnerable to criminal abuse. Employers may convert employee payroll contributions for their own personal use or to pay business expenses. Unscrupulous service providers may target these plans for their own personal benefit and profit. In some instances, third parties have gained access to these funds and have used these funds for their own financial gain. Employee accounts can be susceptible to theft by internal employees or third parties who may steal from these accounts through identity theft and by tampering with personal data records. Misuse of employee contributions may result in unpaid health benefits or insurance premiums, leaving workers without medical coverage. When employers or other parties keep employee payroll contributions intended for 401(k) plans, they deprive workers of their earned retirement savings.
Many CPCP investigations have led to successful prosecutions by the Department of Justice as well as state and local prosecutors. EBSA believes that aggressive investigation and prosecution of the most egregious cases will create a significant deterrent. Participants in contributory plans provided through their employers are vulnerable to a variety of crimes.
Voluntary Fiduciary Correction Program (VFCP) - The Office of Enforcement oversees the administration of the Voluntary Fiduciary Correction Program, a voluntary program intended to protect the financial security of workers through the identification and correction of transactions that violate Part 4 of Title I of ERISA. Applications to the VFCP should be mailed to the appropriate EBSA office.
Abandoned Plan Program (APP) – Significant business events, such as mergers, acquisitions, and other similar transactions affecting the status of the employer may result in plan abandonment. In other cases, plan abandonment may occur when the sponsoring employer has been incarcerated, died, or fled the country. Financial institutions holding the assets of these abandoned plans often do not have the authority or incentive to perform the responsibilities otherwise required of a plan administrator. At the same time, participants and beneficiaries are unable to access their plan benefits. The Abandoned Plan Program (APP) facilitates the termination of, and distribution of benefits from individual account pension plans that have been abandoned by their sponsoring employers. The program was established in 2006 pursuant to three final regulations and a related class exemption. The APP is administered by EBSA national and regional offices.