Category Archives: DOL

Today in ERISA History

July 20, 2009 – The Dept. of Labor issues Field Assistance Bulletin 2009-02, providing guidance on Form 5500 annual reporting requirements for 403(b) tax-sheltered annuity programs for contracts issued before Jan. 1, 2009.

In 2007, the IRS issued the Final 403(b) Regulations and the DOL published a revised Form 5500 and related regulations, eliminating limited reporting for 403(b) plans and requiring ERISA 403(b) plans with 100 or more participants to file audited financial statements with their Form 5500 filings. Recognizing that administrators could be unable to identify all participant contracts and accounts issued before Jan. 1, 2009, the DOL provided transitional relief for the 2009 plan year Form 5500 filings as long as certain conditions were met.

United Employee Benefit Fund, Govt Reach Agreement Over Loan Allegations

What started with a bang has ended with a whimper. It began with the Dept. of Labor issuing a press release on Aug. 30, 2011, announcing that the DOL was seeking “to recover more than $1 million in improper and delinquent loans made from United Employee Benefit Fund.” It ended with an agreement between the parties to pay their own attorneys fees and expenses, amend the plan documents, and issue some 1099s.

On July 2, 2012, the Dept. of Labor and United Employee Benefit Fund entered into a Consent Order in the U.S. District Court for the Northern District of Illinois, Eastern District, resolving issues the DOL alleged United Employee Benefit Fund had in administering loans within their plan. Specifically, the DOL alleged that United Employee Benefit Fund had issued at least 194 loans from the fund to individual participants between Jan. 1997 and Dec. 31, 2009, some of which lacked proper documentation, were delinquent, or had exceeded 50 percent of the value of the participants’ accrued benefit. In the Consent Order, United Employee Benefit Fund agreed to amend the loan provisions in their plan documents, issue 1099s to participants whose loans are delinquent for more than 120 days, and provide copies of those 1099s to the DOL within 45 days after the 1099 is issued. As part of the agreement, both parties will pay their own attorneys fees, costs and expenses.

The Consent Order does not include any fine or penalty to be paid by UEBF, and the agreement states that it is not binding on any other agency, including the IRS.

The United Employee Benefit Fund was established by the Professional Workers Master Contract Group and the National Production Workers union Local 707 to provide welfare, medical, death, disability and child care facility benefits to the fund’s participants. As of Dec. 31, 2009, UEBF had approx. 281 participants.

Today in ERISA History

July 11, 1994 – The Dept. of Labor issues Advisory Opinion 94-25A addressing whether the Air Line Pilots Association (ALPA) Group Legal Expense Insurance Plan is an employee welfare benefit plan within the meaning of ERISA section 3(1).

On June 1, 1992, the ALPA Group Legal Expense Insurance Plan was established to provide prepaid legal servicces to ALPA members and ALPA employees. To participate, members and employees could elect to have premiums deducted from their paycheck or they could elect to be billed for the premiums directly by the ALPA. The ALPA was responsible for collecting the premiums and forwarding the amounts to the insurer.

The DOL found that the ALPA Group Legal Expense Insurance Plan was an employee welfare benefit plan subject to Title I of ERISA. In making this determination, the DOL stated that ALPA’s involvement in the plan exceeded the minimumal and neutral involvement contemplated by Labor Reg. 2510.3-1(j). ALPA’s involvement included making suggestions to the insurer about plan design and structure, publicizing the program to employees and members which included ALPA’s logo and branding, ALPA collecting premiums through payroll deductions, and ALPA remitting premiums to the insurer.

Multiple Employer Plans and the Affordable Care Act

Now that the U.S. Supreme Court has found most of the Affordable Care Act constitutional, it creates an interesting dilemma for the Dept of Labor. One of the key provisions of the Affordable Care Act establishes multiple employer plans which employers can utilize to provide health care benefits to their employees.

When the Dept. of Labor issued Advisory Opinion 2012-04A on May 25, 2012, it said that although the multiple employer plan requesting the Advisory Opinion “appears to provide benefits described in ERISA section 3(2), to be an employee pension benefit plan, it must also be established or maintained by an employer, an employee organization, or both.”

ERISA section 3(5), 29 U.S.C. 1002(5), defines the term “employer” as:

(5)The term “employer” means any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.

ERISA section 3(4), 29 U.S.C. 1002(4), defines the term “employee organization” as:

(4)The term “employee organization” means any labor union or any organization of any kind, or any agency or employee representation committee, association, group, or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning an employee benefit plan, or other matters incidental to employment relationships; or any employees’ beneficiary association organized for the purpose in whole or in part, of establishing such a plan.

The Affordable Care Act does not contain an amendment to either ERISA sections 3(4) or 3(5). As of May 25, 2012, the DOL said, in Advisory Opinion 2012-04A, that it has issued no regulations interpreting ERISA section 3(5). Hopefully, those regulations will be coming soon.

In a footnote, there are rumors that the DOL has been meeting with representatives of multiple employer plans over the last month since Advisory Opinion 2012-04A was released. A check of the Federal Register revealed no meeting notice as required by the Government in the Sunshine Act, 5 U.S.C. 552b so I doubt that this rumor is true. Even if the DOL wanted to meet with representatives of multiple employer plans, there is no registry for multiple employer plans other than the IRS’ list of multiple employer plan who have requested a determination letter pursuant to Rev. Proc. 2007-44 during Cycle B. The first Cycle B ended Jan. 31, 2008, and we are currently in the next Cycle B (it ends Jan. 31, 2013), so the IRS will not have even a workable list of multiple employer plans until Jan. 31, 2013 at the earliest.

Today in ERISA History

June 27, 2008 – The Dept. of Labor releases Advisory Opinion 2008-05A addressing whether the fiduciary rules of ERISA prohibit the use of plan assets to promote union organizing campaigns and union goals in collective bargaining negotiations.

After discussing the DOL’s general principals that a fiduciary may only consider factors relating to the interests of plan participants and beneficiaries when deciding whether, and to what extent, to make or refrain from making a particular investment, the DOL says that the use, or threat of use, of pension plan assets or plan management to achieve a particular collective bargaining objective is activity that subordinates the interests of participants and beneficiaries in their retirement income to unrelated objectives, and therefore is prohibited.

Today in ERISA History

June 26, 2003 – The Dept. of Labor issues Advisory Opinion 2003-08A, addressing whether, after all outstanding claims for benefits have been satisfied and all surplus attributable to participant contributions has been used for the provision of benefits, the remaining surplus assets may be transferred to a charitable foundation that is not a party in interest under ERISA section 3(14) in accordance with the terms of the trust document.

The Pennsylvania Automobile Association (“Association”) was a Code section 501(c)(6) trade association which sponsored a multiple employer welfare benefit arrangement (MEWA). The MEWA was established in 1947 and provided health, life, short-term disability, long-term disability, vision and dental insurance to approx. 27,000 participants and beneficiaries of approx. 1,000 members of the Association who participated in the plan.

In 1998, the Association started exploring terminating the plan. On Dec. 15, 2000, one of the insurance companies which the Plan had contracted with to provide benefits, Prudential Financial Inc., announced to its policyholders that it would be undergoing a demutualization, and as part of that demutualization, the Plan received 217,222 shares of Prudential stock with a value of $27.50 per share.

On Dec. 6, 2001, the Association established a Code section 501(c)(3) foundation to carry on educational and charitable activities on behalf of the former participants and beneficiaries in the Plan, as well as those generally affiliated with the automobile dealer industry in Pennsylvania.

The DOL said that there is nothing in ERISA section 403(d)(2) which precludes that transfer of surplus assets to an unrelated charitable foundation after the proper termination of the plan and the satisfaction of all Trust liabilities. If the plan has been properly terminated and all claims have been either paid or properly forfeited, the proposed subsequent transfer of surplus funds by the trustees of that plan would not violate ERISA section 406(b)(2). Further, the DOL said that assuming the contemplated transfer is in accordance with the terms of the plan, then is it specifically allowed under ERISA section 403(d).

Today in ERISA History

June 13, 1989 – The DOL issues Advisory Opinion 89-09A, addressing whether employee benefit plans sponsored by Manville Corp. can reimburse the company for direct expenses incurred by Manville in providing administrative and asset management services to the plans without causing an ERISA section 406 prohibited transaction.

Specifically, Manville sought guidance from the DOL on whether they could be reimbursed for the salary and fringe benefits paid to several Manville employees who spent at least 80 percent of their time providing administrative, asset management, or other services to one or more of the 7 employee benefit plans sponsored by Manville. Additionally, Manville wanted reimbursement for all long distance phone calls, travel expenses, mailing costs, and office supplies used by or incurred by those employees as they were providing services to the plan.

The DOL said:

“subject to the limitations of ERISA section 408(d), ERISA section 408(b)(2) exempts from the prohibitions of ERISA section 406(a) any contract or reasonable arrangement with a party in interest, including a fiduciary, for office space, or legal account, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor. Section 408(c)(2) of ERISA provides, in relevant part, that nothing in section 406 shall be construed to prohibit any fiduciary from receiving compensation for services rendered, or for the reimbursement of expenses properly and actually incurred, in the performance of his or her duties with respect to the plan.”

The DOL states that Manville providing administrative and asset management services to the plans would be exempt from the prohibitions of ERISA section 406(a) if the conditions of ERISA section 408(b)(2) are met, noting that the question of what constitutes a necessary service, a reasonable contract or arrangement, and reasonable compensation are inherently factual in nature.

Today in ERISA History

June 11, 1996 – the Dept. of Labor issues Interpretive Bulletin 96-1 containing a Final Rule on Participant Investment Education. The DOL says it is intended to clarify the circumstances under which the provisions of investment-related information to participants and beneficiaries will not give rise to fiduciary status under ERISA setion 3(21)(A)(ii). It identifies categories of information and materials regarding participant-directed individual account pension plans that, in the DOL’s view, do not constitute “investment advice” under the definition of “fiduciary” in ERISA section 3(21)(A)(ii) and the corresponding regulation at 29 CFR 2510.3-21(c)(1). It is effective Jan. 1, 1975.

In 2007, the ERISA Advisory Council’s Working Group on Financial Literacy of Plan Participants and the Role of the Employer releases a report recommending that the DOL update Interpretive Bulletin 96-1 to address information, education, and advice in the de-accumulation stage as well as the accumulation phase.

On March 15, 2010, the IRS mentions Interpretive Bulletin 96-1 in the Notice of Proposed Rulemaking Request for Information Regarding Lifetime Income Options for Participants and Beneficiaries in Retirement Plans.

Former Madoff Employee Pleads Guilty to Falsifying Form 5500s

Craig Kugel, a former employee of Bernard L. Madoff Investment Securities LLC (BLMIS) and Primex Trading N.A. LLC (Primex), plead guilty yesterday (June 5, 2012) in the U.S. District Court for the Southern District of New York, Manhattan Division, on five counts involving conspiracy, making false statements in relation to documents required by ERISA, and subscribing to false U.S. individual income tax returns.

According to the FBI, Mr. Kugel’s responsibilities at BLMIS and Primex included budget forecasting for BLMIS’ Market Making and Proprietary Trading operations, overseeing the company’s health care plan, and reviewing and maintaining internal employee records and related documents, including submitting the Form 5500s for BLMIS’ employee benefits plan.

Even though he was aware that individuals on BLMIS’ payroll did not work for the firm but nevertheless received salaries and benefits, he created and maintained false BLMIS employee records on their behalf. Those employees were also included on the Form 5500s that Mr. Kugel submitted to the DOL for BLMIS’ employee benefits plan.

Of the 5 counts Mr. Kugel plead guilty to, 2 are related to ERISA:

    Count 1 involves Conspiracy to (1) obstruct or impede the lawful government functions of the Internal Revenue Service and to (2) falsify statements in relation to documents required by ERISA. It carries a maximum penalty of 5 years in prison; 3 years of supervised release; a fine of the greatest of $250,000 or twice the gross gain or loss; a mandatory $100 special assessment; restitution; and criminal forfeiture.
    Count 2 involves making false statements in relation to documents required by ERISA. It carries a maximum penalty of 5 years in prison; 3 years of supervised release; a fine of the greatest of $250,000 or twice the gross gain or loss; a mandatory $100 special assessment; and restitution.

Sentencing is scheduled for Dec. 13, 2012. Mr. Kugel is facing a statutory maximum sentence of 19 year in prison on all counts.

Today in ERISA History

May 31, 2005 – The Dept. of Labor releases Advisory Opinion 2005-13A, addressing whether ERISA section 514(a) preempts the application of certain leave substitution provisions in state law provisions.

Northwest Airlines, Inc. sponsored the Northwest Airlines, Inc. Sick and Occupational Injury Leave Plan for Employees (Sick Leave Plan). It did not allow an employee to use paid sick leave to care for a child or other family member with a health condition or experiencing a health emergency.

At the time, the Washington State Family Care Act (Family Care Act) generally provided that employees entitled to sick leave or other paid time off may use such paid time off to care for certain relatives of the employee who have health conditions or emergency conditions.

ERISA section 514(a) generally preempts any state law which “relates to” an employee benefit plan covered under Title I of ERISA. ERISA section 514(d) provides that “nothing in this title shall be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States…or any rule or regulation issued under such law.” In the advisory opinion, the DOL states that the Family and Medical Leave Act (FMLA) is a law of the United States whose overall purpose and structure parallel those of the state Family Care Act.

The DOL finds that:

“Because the FMLA does not afford all employees the automatic right to substitute paid sick leave for unpaid leave to care for a relative, we do not address whether ERISA preemption of the Washington Family Care Act providing such a right would “alter, amend, modify, invalidate, . . . or supersede” the FMLA. Rather, this letter addresses only whether ERISA preemption would “impair” the FMLA within the meaning of section 514(d) of ERISA. For the reasons discussed below, it is the view of the Department that the Family Care Act’s leave substitution provision is saved from ERISA preemption by ERISA’s federal savings clause because a determination that ERISA preempts the Family Care Act would “impair” the FMLA, which expressly encourages more generous state family leave rights than the FMLA provides directly.”