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DOL Confidential: An Insider's View of a DOLRetirement Investigation

Samuel Henson, CEBSSenior ERISA CounselLocktonKansas City, Missouri

6B-1

ERISA is Complex

6B-2

The “DOL”

6B-3

DOL Field Offices

6B-4

Our Goals Today

Why would the DOL investigate you?

What can you expect?

How can you prepare?

6B-5

Who Does the DOL Examine?

Single Employer

Multi-Employer

Defined Benefit

Defined Contribution

Some 403b and 457 Plans

Some Non-qualified Plans

Welfare Plans

6B-6

“Audit vs. Investigation”

A DOL “examination” may be referred to as:

Audit or Investigation

Your investigator or auditor may have a different expertise:

JD, CPA, or MBA

6B-7

What Causes a DOL Examination?

No DOL Investigation is Random

…Except “SEP Initiative”

6B-8

Four Ways to Trigger an Investigation

Annual Report Form 5500 Red Flags and Questions

Participant Complaint

Service Provider Referral

DOL Targeting Initiatives

6B-9

Annual Report Red Flags

Partnership/Joint Venture Interests

Administrative Expenses

Employer Securities

Personal Property

Real Property

Real Estate

Loans

“Other”

6B-10

Annual Report “Trap” Questions

DOL Uses ERISA Data System—“EDS”

Looking at 4 questions:

Failure to transmit employee contributions

Non-exempt party in interest transactions

Fraud or dishonesty losses

Hard to value assets

6B-11

Compliance Questions

6B-12

Service Provider Referrals

ERISA Co-Fiduciary Liability—Sect. 405(a):

Knowing participation or concealment

Enabling a breach to occur

No reasonable steps taken to remedy situation

6B-13

DOL Targeting Initiatives

MEWAs

Health Disclosures and Claims Issues

Settlor Fees

Employee Contributions

Recidivism

Abandoned Plans

Apprenticeship Plans

6B-14

The Investigation

Stage 1—Appointment Letter

Stage 2—On-site Investigation

Stage 3—Compliance

6B-15

Stage 1—The Appointment Letter

Audit period is three years (maximum of six)

Photo copies only

Request receipt

Tab to the appointment letter

6B-16

6B-17

6B-18

Stage 2—Onsite Investigation

Typically 1-5 days

May be away from the employer.

Organization = “Out the Door.”

Make people available.

Potentially 1-3 interviews.

6B-19

If Two Investigators Show Up . . .

Ask why?

Ask if this is a criminal investigation?

Cease voluntary cooperation.

Immediately seek counsel.

6B-20

Areas of Scrutiny

Corporate Governance/Plan Administration

Disclosure

Reporting

Bonding

Funding

Investment Selection/Monitoring/Fees

Service Providers Selection/Monitoring

Participant Loans

Contribution Testing

6B-21

What The DOL Is Really Looking For . . .

Violations

Monetary Recovery

Criminal Cases

6B-22

Stage 3—Compliance

Voluntary Compliance Letter (VCL)

Response

Negotiation

Action

Closing

6B-23

Potential Penalties

Civil penalty for fiduciary breach—502(l)20% of the amount recovered

The DOL may waive the penalty for financial hardship or acting in good faith

Only issue penalties for:Civil litigation

Formal settlements

Repeat offenders

Egregious situations

6B-24

The IRS’ Role

DOL will refer to the IRS.

IRS will assess an excise tax.

6B-25

Learn From the Experience

Examine your administrative practices.

Incorporate the DOL’s findings.

Don’t repeat mistakes.

Document your decisions, actions and considerations.

Improve record keeping and retention.

Learn to “investigate” yourself.

6B-26

Remember

Why the DOL investigates . . .

What the process involves . . .

Prepare yourself . . .

6B-27

Questions?

Thank You!

6B-28