1. What to Expect from an Employee Benefits Security Administration (EBSA) Investigation Voluntary Fiduciary Correction Program March 18, 2016 Klaus Placke Deputy Regional Director San Francisco Regional Office

2. Disclaimer This presentation may contain opinions of the presenter that may not comport with the official views of the U.S. Department of Labor and is meant for educational purposes only.

3. EBSA Organizational Chart Office of the Chief Accountant Deputy Assistant Secretary Office of Exemption Determinations Office of Enforcement Office of Policy and Research Office of Health Plan Standards and Compliance Assistance Office of Regulations and Interpretations Deputy Assistant Secretary for Program Operations Office of Technology and Information Services Office of Participant Assistance Office of Program Planning Evaluation and Management Regional Offices Chicago Kansas City Dallas Los Angeles San Francisco Assistant Secretary Boston New York Philadelphia Atlanta Cincinnati

4. EBSA Field Offices Regional Offices District Offices

5. EBSA - Structure Establishes policy and agency protocols Oversight of reporting and disclosure requirements Drafts regulations and interpretive guidance Conducts economic research to determine impact of policy and regulations on regulated community Conducts outreach such as the Health Benefits Education Campaign National Office Conduct investigations of ERISA plans Provide compliance assistance through Benefit Advisors Conduct outreach to plan sponsors and other stakeholders Regional Offices

6. EBSA’s Mission Statement The mission of the Employee Benefits Security Administration is to assure the security of the retirement, health and other workplace related benefits of America’s workers and their families. We will accomplish this mission by: developing effective regulations; developing effective regulations; assisting and educating workers, plan sponsors, fiduciaries and service providers; and assisting and educating workers, plan sponsors, fiduciaries and service providers; and vigorously enforcing the law. vigorously enforcing the law.

7. National Enforcement Projects (FY 16) Contributory Plans Criminal Project (CPCP) Rapid ERISA Action Team (REACT) Employee Stock Ownership Plans (ESOPs) Health Benefits Security Project (HBSP) Plan Investments Conflicts Project (PIC)

8. Sources of Cases Participant complaints Form 5500 Reviews Referrals from other agencies Media Other

9. Types of Investigations Investigations may be civil or criminal in nature and may focus on: The Plan The Plan Sponsor A Service provider An Individual 9

10. Issues/Areas of Review in Civil Cases Review of Plan Assets – –Prudence, Prohibited Transactions, Self Dealing Reporting and Disclosure Bonding General Plan Operations

11. General Process for Civil Plan Investigations Case Opening Letter Request documents Interviews Voluntary Compliance Letter Correction Closing Letter

12. Civil Plan Investigations Start with phone call from Investigator / Auditor Followed by confirmation letter » »Date & time of visit » »Plan(s) to be reviewed » »Records / documents needed – –Varies depending on issue

13. Review of Basic Documents Plan Document/ Trust Agreement Form 5500 filings (past 3 years) SPD SAR for last year Fidelity Bond Trustee Statements (past 3 years) (asset records) Service Provider Contracts Meeting Minutes Benefit Statements Asset records Payroll/contribution records

14. Onsite Investigative Work Interviews with key personnel and plan fiduciaries Basic operations / services » »Contributions » »Benefit payments » »Expenses » »Investments Identification of » »Service providers » »Record-keeper(s)

15. Investigative Emphasis Reporting Requirements » »Annual Report (Form 5500) Compliance with ERISA Part 7 (laws that relate to Group Health Plans)

16. Health Laws Included in ERISA Consolidated Omnibus Budget Reconciliation Act (COBRA) Health Insurance Portability and Accountability Act (HIPAA) Mental Health Parity Act (MHPA) Newborns’ and Mothers’ Health Protection Act (Newborns’ Act) Women’s Health and Cancer Rights Act (WHCRA) Genetic Information Nondiscrimination Act (GINA) Mental Health Parity and Addiction Equity Act (MHPAEA) Children’s Health Insurance Program Reauthorization Act (CHIPRA) Michelle’s Law Patient Protection and Affordable Care Act (Affordable Care Act)

17. Investigative Emphasis Disclosure Requirements – –Summary Plan Descriptions (SPDs) – –Summary of Material Modifications (SMM) – –Summary Annual Reports (SARs) – –“Blackout” Notices – –COBRA Notices / HIPAA Certificates & more – –Provide documents on request – –Participant Benefit Statements » »Field Assistance Bulletin 2006-03 » »Field Assistance Bulletin 2007-03

18. Investigative Emphasis Bonding – –10% of Funds Handled – not less than $1,000 nor more than $500,000 ($1,000,000 for plans with employer securities) – –No deductible – –Plan should be named as insured – –Discovery Period of no less than one year after termination or cancellation of bond is required – –See FAB 2008-04

19. Who is a Fiduciary under ERISA? Named as a plan fiduciary in plan documents -or- who: Exercises discretionary authority or control over plan management - or - Exercises authority or control over plan assets - or - Provides investment advice for compensation (direct or indirect)

20. Fiduciary Responsibilities Fiduciary must – –Act “solely in interest” of Ps & Bs – –Discharge his / her / its duties prudently (care, skill, prudence and diligence) – –Diversify plan investments – –Follow terms of governing documents

21. Fiduciary Responsibilities Fiduciary must NOT – –act in his / her / its own self interest – –act on behalf of a party with adverse interests – –accept “gratuity” from those doing business w/ the Plan (kickback)

22. Fiduciary Responsibilities Fiduciaries must NOT cause the Plan to engage in a “prohibited transaction” » »Sale / exchange with party in interest (PII) » »Loan / extension of credit with PII » »Goods, services & facilities with PII » »Transfer to, use by or for the benefit of a PII

23. Parties in Interest Party in interest (PII) Fiduciaries Sponsoring employer/union Officers, employees & owners Relatives of fiduciaries Service providers Officers, employees & owners Related companies 23

24. Examples of Fiduciary Violations in Retirement Plans Plan abandonment Plan abandonment Failure to process and pay distributions Failure to process and pay distributions Loans to plan sponsor Loans to plan sponsor Imprudent investments – lack of due diligence in selecting, valuing & monitoring Imprudent investments – lack of due diligence in selecting, valuing & monitoring Unreasonable or unnecessary fees Unreasonable or unnecessary fees Plan property not titled in the name of Plan Plan property not titled in the name of Plan Failure to timely remit contributions Failure to timely remit contributions

25. Examples of Group Health Plan Violations Failure to provide benefits in accordance with plan terms Improper or arbitrary claims adjudication Failure to follow the DOL claims procedure rules Failure to forward employee premiums to the insurance provider Failure to provide mental health benefits in parity with medical/surgical benefits in accordance with mental health parity rules Failure to provide required notices 25

26. Employee Contributions Forwarding of employee contributions to the Plan’s Trust Basic Rule – As soon as they can be “reasonably segregated” from Employer’s general assets Safe Harbor Reg. – 1/14/2010 - for plans with fewer than 100 participants

27. Employee Contributions Outside Limits (Not a safe harbor) » »Pension – 15 Business Days after end of month of withholding / receipt > » »Welfare – 90 days after withholding / receipt

28. Concluding the Investigation If no problems are noted, closing letter If problems are noted, corrective actions are necessary

29. Needing Correction Usually, EBSA will send “Notice Letter” » »Identifies problems » »Offers chance to discuss correction EBSA encourages Voluntary Compliance Proper Correction >> “Closing Letter” » »Identifies problems & corrective actions No Correction >> referral to the Solicitor’s Office

30. Needing Correction Depending upon the circumstances, EBSA may seek » »Correction of prohibited transactions » »Restoration of losses » »Disgorgement of profits » »Penalties » »Removal of fiduciaries and/or service providers » »Appointment of independent fiduciary » »Implementation of new internal controls » »Re-adjudication of claims » »Final accounting

31. IRS Referrals IRS Coordination Agreement and Statute requires: – –referral of prohibited transactions to IRS » »IRC § 4975 excise tax (tax qualified pension plans) – –referral of potential issues affecting tax qualified status

32. Criminal Referrals Under some circumstances, criminal referrals may be made » »Theft / embezzlement » »Kickbacks / bribes » »False statements to investigators » »Willful failures to file / false filings » »Health care fraud

33. Voluntary Fiduciary Correction Program

34. Allows “Plan Officials” to correct certain violations before DOL investigates and if done properly, receive a “No-Action” letter from the Department. What is the VFC Program ? DOL NO ACTION DOL “You fixed it”

35. VFC Program Designed to be a voluntary program Designed to be a voluntary program No need to consult with EBSA No need to consult with EBSA Apply after correction Apply after correction

36. VFC Program - Advantages Compliance with ERISA Compliance with ERISA Guidance regarding correction Guidance regarding correction Restoration of losses Restoration of losses Increased benefits for some Ps & Bs Increased benefits for some Ps & Bs Enhanced benefit security Enhanced benefit security More accurate valuations & reporting More accurate valuations & reporting

37. VFC Program - Advantages “No Action” letter (upon completion) “No Action” letter (upon completion) Avoid DOL investigations Avoid DOL investigations Avoid ERISA §502(l) penalty Avoid ERISA §502(l) penalty –20% penalty on settlement agreements Avoid potential litigation Avoid potential litigation In some cases, avoid IRC §4975 excise tax In some cases, avoid IRC §4975 excise tax

38. VFC Program - Applicants Fiduciaries Fiduciaries Plan sponsors Plan sponsors PIIs PIIs Others in a position to correct Others in a position to correct May utilize “Representative” May utilize “Representative” –Must include copy of signed authorization

39. VFC Program - Process Identify potential ERISA violations Identify potential ERISA violations Determine VFCP eligibility Determine VFCP eligibility Correct violations Correct violations File an application with Regional Office File an application with Regional Office

40. VFC Program - Transactions

41. VFC Program - Eligibility Neither plan nor applicant “Under Investigation” Neither plan nor applicant “Under Investigation” No evidence of criminal violations No evidence of criminal violations EBSA has not referred the transaction to the IRS; EBSA notified plan official of referral EBSA has not referred the transaction to the IRS; EBSA notified plan official of referral

42. VFC Program - Correction All losses must be restored to plan, all PTs corrected All losses must be restored to plan, all PTs corrected – Principal – Interest Supplemental distributions must be made (when appropriate) Supplemental distributions must be made (when appropriate) No correction costs paid by plan No correction costs paid by plan 5500s amended when appropriate 5500s amended when appropriate

43. VFC Program - Application Narrative Narrative –Describe parties involved, explain breach and correction, and how “earliest reasonable date” was determined in delinquent EE contributions apps. Supporting documentation Supporting documentation –e.g., relevant parts of plan, loan documents, FMV determinations Penalty of Perjury Statement Penalty of Perjury Statement Checklist Checklist Proof of Payment Proof of Payment

44. VFC Program - Application Model Application Form Model Application Form –Not required, but recommended –Helps ensure a complete and accurate application Includes Required Documents Includes Required Documents –Penalty of Perjury statement –Checklist

45. VFC Program – Exemption Delinquent Contributions/Loan Contributions to Pension Plans Delinquent Contributions/Loan Contributions to Pension Plans Loans to PIIs @ “Fair Market” Rates Loans to PIIs @ “Fair Market” Rates Purchases/Sales w/ PIIs @ FMV Purchases/Sales w/ PIIs @ FMV Sale/Leaseback to Employer Sponsor Sale/Leaseback to Employer Sponsor @ FMV Illiquid Assets Illiquid Assets Settlor fees paid to PII Settlor fees paid to PII

46. Compliance Assistance Office of Regulations & Interpretations » »Advisory Opinion Letters, Regulations, Technical Rulings » »(202) 693 - 8500 Office of Exemptions & Determinations » »Exemptions from Prohibited Transaction Rules Class & Individual basis » »(202) 693 - 8540

47. Compliance Assistance Office of Chief Accountant » »Reporting & Disclosure issues » »(202) 693 - 8360 Office of Health Plan Standards & Compliance Assistance » »HIPAA & other group health laws » »(202) 693 - 8335

48. Compliance Assistance EBSA website: www.dol.gov/EBSA EFAST website: www.efast.dol.gov Publications: 1-866-444-3272 Technical Assistance (Toll-free number): 1-866-444-3272 EFAST Hotline (Toll-free number): 1-866-463-3278 (Go EFAST)

49. Helpful EBSA Publications Meeting Your Fiduciary Responsibilities Understanding Retirement Plan Fees and Expenses Selecting an Auditor for Your Employee Benefit Plan Reporting and Disclosure Guide Selecting & Monitoring Pension Consultants – Tips for Plan Fiduciaries Tips for Selecting and Monitoring Service Providers for Your Employee Benefit Plan