Transcript From DIscharge, to Charge, to Litigation: Tips for

This UBA Employer Webinar Series
is brought to you by United Benefit Advisors
in conjunction with Jackson Lewis
For a copy of the following presentation, please visit our
website at www.UBAbenefits.com. Go to the Wisdom tab and
then to the HR webinar series page.
[email protected]
[email protected]
2
Represents management exclusively in every aspect of
employment, benefits, labor, and immigration law and
related litigation
Over 700 attorneys in 53 locations nationwide
Current caseload of over 5,000 litigations and
approximately 300 class actions
Founding member of L&E Global
3
This presentation provides general information regarding its subject and explicitly may not be construed as
providing any individualized advice concerning particular circumstances. Persons needing advice concerning
particular circumstances must consult counsel concerning those circumstances. Indeed, health care law is
highly complicated and it supplements and amends an existing expansive and interconnected body of
statutory and case law and regulations (e.g., ERISA, IRC, PHS, COBRA, HIPAA, etc.). The solutions to any
given business’s health care plan compliance and design issues depend on too many varied factors to list,
including but not limited to, the size of the employer (which depends on complex business ownership and
employee counting rules), whether the employer has a fully-insured or self-funded group health plan, whether
its employees work full time or part time, the importance of group health coverage to the employer’s
recruitment and retention goals, whether the employer has a collectively-bargained workforce, whether the
employer has leased employees, the cost of the current group health coverage and extent to which
employees must pay that cost, where the employer/employees are located, whether the employer is a
religious organization, what the current plan covers and whether that coverage meets minimum requirements,
and many other factors.
IRS Circular 230 disclosure: Any tax advice contained in this communication (including any attachments or
enclosures) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties
under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any
transaction or matter addressed in this communication. (The foregoing disclaimer has been affixed pursuant
to U.S. Treasury regulations governing tax practitioners.)
4
A Few Words on Health and Welfare Plans
U.S. Department of Labor (“DOL”) Background
What to Expect if your Plan is audited
o What prompts a DOL audit of a plan?
o What steps to take upon receipt of notice of the DOL audit?
o How DOL audits or investigations are resolved?
o Current “Hot Topics”
o Potential Penalties
Proactive Measures
5
Any plan, fund or program established and maintained
by an employer, an employee organization, or both
For the purpose of providing participants and
beneficiaries, through purchase of insurance or
otherwise
o Medical, surgical, hospital care or benefits, or
o Benefits in the event of sickness, accident, disability, death,
unemployment, vacation, apprenticeship or training programs,
day care centers, scholarships funds, or prepaid legal services
6
Complex set of Federal and state statutes and
regulations
o The Employee Retirement Income Security Act (“ERISA”)
o Consolidated Omnibus Budget Reconciliation Act (“COBRA”)
o Health Insurance Portability and Accountability Act (“HIPAA”)
o Genetic Information Nondiscrimination Act (“GINA”)
o Michelle’s Law
o Affordable Care Act
7
Charged with the responsibility for the administration and
enforcement of ERISA
Primary responsibility for oversight of employee benefit
plans delegated to Employee Benefits Security
Administration (“EBSA”)
o 10 Regional Offices in CA, GA, IL, MA, MO, NY, OH, PA, and TX
o Multiple District Offices in almost every state
8
EBSA 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; assisting and educating workers, plan
sponsors, fiduciaries and service providers; and
vigorously enforcing the law.” [Emphasis added.]
http://www.dol.gov/ebsa/aboutebsa/org_chart.html#
mission
9
“Vigorously enforcing the law” translates to:
o Approximately 81% of EBSA’s 2013 budget (post-sequestration)
is devoted to enforcement actions ($140 million)
o Approximately 72% of EBSA’s 3,566 civil cases closed with
monetary payments or other corrective measures in 2012
10
EBSA Chain of Command for Audits
o Investigator
o Senior Investigator/Group Supervisors
o Associate Regional Directors and Regional Directors
o Office of Enforcement - EBSA “HQ” in Washington, D.C.
o Deputy Secretaries of Labor and Assistant Secretary of Labor
Other related agencies:
o Office of the Solicitor (EBSA’s legal counsel)
o Office of the Chief Accountant (DOL’s Form 5500 office)
11
Participant Complaints
Referrals from Fiduciaries or Plan Service Providers
(rare)
Audit flags from Form 5500
o Delinquent contributions
o Late filings
National Initiatives
Random Selection
12
DOL Notice of an Audit may be
o Via a phone call from an investigator, or
o A written document request
Documents Requested - Short Form:
o Plan Documents
o Employee Notices and Summary Plan Description
o Summary Payroll Registers and Claims
o Board Minutes Relating to the Plan
o Form 5500
13
Documents Requested – Long Form: Short Form Plus:
o List of Plan Officials and Service Providers
o Premium Payments (if not self-insured)
o Certificate or Evidence of Coverage (if not self-insured)
o Insurance Policies (if not self-insured)
14
Plan Documents
Plan Administration and Operations
o Required Disclosures and Other Employee Communications
o Claims Procedures
Fidelity Bond Coverage
Funding and Investment of Plan Assets
Appointment, Replacement, and Indemnification of Plan
Fiduciaries
15
DO:
DO NOT:
o Notify your ERISA counsel
(and general corporate
counsel) immediately
o Work with ERISA counsel
to produce the requested
documents
o Ask what prompted the
audit
o Volunteer documents or
information that is not
requested
o Ignore the notice
o Tender the DOL Audit
• If the company has
fiduciary liability insurance
16
Sources of Records and Information:
o Internal Employees: Executives, Office Managers, Human
Resources, Payroll, In-House Counsel
o External: Corporate Counsel, Plan’s Third-Party Record Keepers
or Administrators, Accountants, Insurance Providers (contacted
through the insurance broker)
Designate one person to coordinate the collection and
production of documents and communicate with the DOL
17
Be Organized
o Stick to DOL’s checklist for organizing principle
o Arrange in chronological (or reverse chronological) order within
each numbered category
o Compile in indexed binders (or numbered folders if providing
electronically)
Be comprehensive:
o Explain the absence of missing information or documents
o Identify compliance problems (if any) in advance
18
Pay attention to dates
o Most requests are limited to most recent 3 full years
o Common Exception: Grandfathered Plans under the Affordable
Care Act (March 23, 2010)
o Statute of Limitations - Fiduciary Claims: Section 413 of ERISA
(3 or 6 year statute)
o Statute of Limitations Non-Fiduciary Claims: Most analogous
state statute of limitations
19
Comprehensive, organized, and timely responses:
o Often reduce or eliminate the need for an interview or on-site
review
o Demonstrates good faith efforts to cooperate with the audit or
investigation
o Establishing a rapport with the investigator will help if corrective
actions are required to close the audit
20
If the DOL requests an interview or insists on reviewing
documents on-site:
o Review any compliance issues with ERISA counsel in advance
o Arrange for separate representation of fiduciaries (as applicable)
o Determine who will be interviewed (person most knowledgeable)
o Arrange to have counsel present
o Designate an appropriate location for the interview/review
21
Selecting an appropriate location:
o Provide comfortable, usable working space
o Avoid high traffic areas
o Have all documents produced readily accessible (and preferably
duplicated)
Consider an external location:
o Limits disruption to business operations
o May raise questions as to why business documents are housed
off-site
22
Usually informal (not recorded on tape or video)
DOL Investigator will:
o Ask questions until he has covered his agenda (not divulged)
o Act professionally
The Interviewee should:
o Be familiar with the Plan Documents and plan operations
o Be prepared to address compliance issues and propose or
describe corrective measures
o Be available for at least 3 hours if not the full day
23
The Interviewee should (continued):
o Respond honestly and as specifically as possible
o Address only the questions asked
o Ask the Investigator to clarify any questions that are ambiguous
The company or interviewee should not:
o Designate an interviewee with little to no knowledge of the Plan
o Offer to take the DOL Investigator out to lunch
o Use the interview as a forum for discussing (or complaining
about) political views or any matters not related to the Plan
24
Be Professional
Be responsive to DOL requests for information and
documents
Keep a detailed record of every interaction with the DOL
Be patient
o Even after the initial document review or interview, the DOL may
ask for supplemental documents or information over an
extended period of time
25
Outcomes:
o No action
o Corrective Measures Required
o Litigation
Case cannot close until the reason for the audit under
“Predication” section in Report of Investigation is
resolved or explained (according to the DOL
Enforcement Manual)
26
If a Problem is Identified: Voluntary Compliance Letter
(“VC Letter” or “VC Notice Letter”)
o Signed by Regional Director
o Plan Fiduciaries have 10 days to respond
o DOL usually will grant at least one extension for good reason
o Proof of Correction must be submitted within agreed upon
timeframe
o Process (including review and acceptance of correction) can last
from a few weeks to a few months
27
“No Action” Closing Letter – Several Variations
o No ERISA violations found
o Violations cited, however, DOL does not deem case fit for further
action (“warning closing letter”)
o Violations cited, however, no damages or de minimis damages
to plan
o Violations cited and corrected (following receipt of VC Letter)
28
Occasionally the investigation just ends, sometimes
without written communication or closure
o Retain records of the audit
o Create file memo for resolution of any issues identified during
the document production
o May request written confirmation of audit conclusion
o Balance need for closure against risk of inviting further scrutiny
or request for tolling agreement
29
DOL National Priority: Health Benefits Security Project
o Started in 2010
o Affordable Care Act
o Identifying and shutting down abusive Multiple Employer Welfare
Arrangements (MEWA), which covers unrelated employers not
subject to bona fide collective bargaining agreement (CBA)
o Investigation of Insurance Companies and Denials of Claims
o Criminal Investigations of Fraudulent Medical Providers
30
Plan Operations and Disclosures, particularly:
o Elimination of Lifetime Limits
o Extension of Coverage to Dependents to age 26
o Women’s Health notices (pregnancy and cancer rights)
o Certificates of Creditable Coverage
Internal and External claims and appeals
Grandfathered Plans
o Plan must have been in place on March 23, 2010
31
DOL may assess:
o Civil Penalties
o Criminal Penalties
The DOL penalties may be part of a pre-litigation
settlement agreement
DOL may refer case to another agency or agencies
DOL may pursue litigation
32
ERISA §502(c) penalties: $1,000 per day for failure to file
Form 5500
ERISA §502(i) penalties: 5% of amount involved in
prohibited transaction
ERISA §502(l) penalty – 20% of the mandatory penalty
imposed by the DOL on the recovery amount
o Settlement or Consent judgment
o Penalty waiver may be available for good faith, financial or other
hardship (rarely granted)
33
ERISA §501 penalty
o Willful violation of ERISA’s reporting and disclosure requirements
o Maximum: $100,000 (individual)/ $500,000 (other) and/or 10
years’ imprisonment
Additional penalties for false statements and/or
concealment, theft or embezzlement from an ERISA
plan, and criminally influencing the operations of ERISA
plans (under the U.S. Criminal Code)
34
If referred to the IRS:
o Potential plan disqualification
o Excise Taxes
If the matter proceeds to trial:
o Attorney’s fees
o Possible punitive damages
o Negative press
35
Effective plan governance
o Document plan sponsor/administrator procedural prudence
o Keep all plan related materials in one location
o Ensure that all plan documents, amendments, and resolutions
are signed and dated
Maintain adequate insurance
o Fidelity Bond and Fiduciary Liability Insurance
36
Have HR take ownership of the plan
o Learn the legal requirements and updates
o Carefully review the Evidences of Coverage and all materials
provided from service providers
o Seek expert advice, as needed
o Establish written procedures and controls for enrollment, claims
for benefits or disputes, and ensuring timely distribution of
required disclosures
37
Have HR Take Ownership of the Plan (Continued)
o Keep the Summary Plan Description up to date and accurate
o Keep the Summary Plan Description and all notices easily
accessible to participants
o Response promptly and effectively to participant inquiries
o Timely file all Forms 5500
38
Have HR Take Ownership of the Plan (Continued)
o Conduct periodic internal audits to ensure compliance
o Take advantage of resources freely available, like the selfcompliance tools at
http://www.dol.gov/ebsa/healthlawschecksheets.html
o Plan administration is usually the plan sponsor’s responsibility—
do not just expect your broker to take care of these
responsibilities for you
39
Identify and correct any errors or issues before the DOL
identifies the problems
o DOL offers voluntary correction programs for certain listed
transactions and for late filings of Form 5500 with reduced
penalties
o Once the DOL provides notice of a plan audit, these voluntary
correction programs cease to be available
40
DOL Voluntary Fiduciary Correction Program (VFCP):
o 19 covered transactions subject to VFCP
o Model application available
o Supporting documentation and proof of correction required
o 3-year bar from reapplying
o Usually no penalties but must pay “lost earnings” or “restoration
of profits” to plan as part of correction
41
DOL Delinquent Filer Voluntary Compliance Program
(DFVCP):
o Reduced penalties for late or missing filing of Form 5500
o Ineligible if the Office of the Chief Accountant issues a notice of
an intent to assess a penalty
o Caution: May raise audit risk
42
Know the Plan
Know the Legal Requirements
Consult the Experts as Needed
Correct Errors in Advance
If Audited:
o Immediately consult ERISA counsel
o Be professional, organized, and comprehensive
o Do not panic
43
44
Thank you for your participation
in the UBA Employer Webinar Series
If your question was not answered during the webinar or
if you have a follow-up question, you can email the presenters today or
tomorrow at: [email protected]
www.UBAbenefits.com
www.jacksonlewis.com
To obtain a recording of this presentation, or to register for future
presentations, contact your local UBA Partner Firm.