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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.
Example violations applicable to both pension and welfare plans include:
- 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.
Contributory Plans Criminal Project (CPCP) – The CPCP is EBSA's first solely national criminal project and is designed to target persons who commit fraud and abuse against participants and beneficiaries of contributory employee benefit plans. Millions of American workers share in the costs of employee benefits by contributing to employer sponsored retirement and health benefit plans. This project focuses on protecting employees who participate in all types of contributory plans – both pension and health. There are a number of ways in which contributory plans can be vulnerable to criminal abuse. Employers, or others with authority over plan assets, may convert employee payroll contributions for their own personal use or may use employee contributions to pay business expenses. This may result in unpaid health benefits or insurance premiums, leaving workers without medical coverage, or result in unpaid contributions to workers' 401(k) plans, leaving the employees with reduced or nonexistent retirement savings. Unscrupulous service providers may also target these plans for their own personal benefit and profit. EBSA has uncovered some instances where third parties have gained access to these funds and have used these funds for their own financial gain. These schemes can involve internal employees or third parties who may steal from these accounts by using identity theft and tampering with personal data records.
Plan Investment Conflicts – The new Plan Investment Conflicts Project will incorporate the former Fiduciary Service Provider Compensation Project and expand to include the investigation of conflicts of interest in relation to plan asset vehicles. The project will continue to investigate the receipt of improper or undisclosed compensation by employee benefit plan consultants and other investment advisers and support 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. Examinations will review conflicts of interest of fiduciary service providers and investment managers of plan asset vehicles that may lead to conflicted decision making processes, imprudent application of investment guidelines and payment of excessive fees. Further, the project will continue to examine plan fiduciary due diligence related to plan investments, service providers and valuation preparation. This expansion of focus on conflicts inherent in plan asset vehicles is important in order for EBSA to maintain a strong enforcement presence within the regulated financial community. EBSA will also conduct criminal investigations of potential fraud, kickback, and embezzlement involving investment managers and advisers to plans and participants.
Health Benefits Security Project (HBSP) – Established in FY 2012, the Health Benefits Security Project is EBSA's comprehensive national health enforcement project, combining EBSA's established health plan enforcement initiatives with the new protections afforded by the Patient Protection and Affordable Care Act of 2010 (ACA). The HBSP involves a broad range of health care investigations, including examinations for compliance with ERISA Part 7 and ACA, civil and criminal investigations of multiple employer welfare arrangements (MEWAs), investigations of insurance companies and claim administrators to ensure that promised benefits are actually provided, and criminal investigations of fraudulent medical providers.
The HBSP continues EBSA's 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).
The HBSP investigations 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 plan document may contain ERISA- and ACA-compliant language and procedures, but operationally, the promised health benefits are not provided at all or not within the requirements of the law or the plan document. Therefore, the HBSP also focuses on plans' and claims administrators' failure to provide promised health benefits through a lack of disclosure or through the misapplication in substance or in procedure of the plan's terms.
In addition, the HBSP continues EBSA's long-standing efforts to seek out and shut down abusive 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. Final regulations, which became effective on April 1, 2013, established policies and procedures for implementation of the cease and desist and summary seizure rules.
The HBSP also includes criminal investigations of MEWAs. Numerous schemes investigated by EBSA in the last few years have involved mail fraud, wire fraud, bankruptcy fraud, and other ERISA crimes. These criminal MEWA cases, which are prosecuted for the Department by U.S. Attorneys' offices, have resulted in jail sentences and court ordered restitution against fraudulent MEWA operators.
Finally, health care fraud by medical providers drains limited assets available to pay benefits and raises the cost of coverage for employees. Health plans often have limited resources to detect and protect itself against such fraud. The HBSP is expanded to include criminal cases aimed at fraud on self-funded health plans by medical providers.
Rapid ERISA Action Team (REACT) – In carrying out its responsibility to protect participants' and beneficiaries' benefits, EBSA has targeted populations of plan participants who are potentially exposed to the greatest risk of loss. One such group of individuals is participants and beneficiaries of plans whose sponsor has filed for bankruptcy. The REACT project, which was begun in FY 2001, enables EBSA to respond in an expedited manner to protect the rights and benefits of plan participants when the plan sponsor faces severe financial hardship or bankruptcy and the assets of the employee benefit plan are in jeopardy. Under REACT, EBSA responds to employer bankruptcies by ensuring that all available legal actions are taken to preserve pension plan assets and welfare plan benefits. In such situations, 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. When a plan sponsor faces severe financial hardship, the assets of any plans and the benefits of participants are placed at great risk. Due to the tight time frames and the intricacies of the bankruptcy and insolvency laws, plan assets and employee benefits are often lost because of the plan fiduciaries' failure to timely identify pension plan contributions that have not been paid to the plan's trust or insurer who pays health claims.
Under REACT, 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.
Employee Stock Ownership Plans (ESOP) – Established in 2005, the Employee Stock Ownership Plan (ESOP) project identifies and corrects violations of ERISA in connection with ESOPs, the only defined contribution plans which are designed to invest primarily in employer securities. EBSA seeks to ensure these plans protect the interests of their participants and beneficiaries.
When an ESOP buys or sells plan sponsor stock, it is critical that the plan does not pay more than, or sell for less than, the fair market value of the plan sponsor stock. ESOP investigations also examine, among other matters, stock purchase or sale transactions for potential conflicts of interest which can arise when the person selling plan sponsor stock to, or buying plan sponsor stock from, the plan also serves in a fiduciary capacity over the plan itself.
EBSA also 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 often expansive control over a large number of plans.
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.