© graydon head & ritchey llp preparing for a dol audit what to expect and how to survive an...

Preparing for a DOL Audit

What to Expect and How to Survive an EBSA Benefit Plan Investigation

Chris Allesee, August 13, 2015

When to Start

NOW! ALWAYS BE AUDIT-READY

Due diligenceStay abreast of fiduciary issues

o http://www.graydonhead.com/news/blog-benefits-insight

Make sure plan-related documents are readily available or easily accessibleIdentify fiduciaries

Phases of an Audit

Introduction and Appointment Letter Onsite Investigation Interviews Ingoing Investigation Closing or Compliance Letter Discussions and Resolution If Necessary:

o Settlemento Litigationo Penalty Assessment

All ERISA-covered benefit plans are subject to DOL jurisdiction

ERISA §504 - U.S. Department of Labor authorized to investigate plans for any or no reason, to request documents, and to discuss the investigation with affected participants

Current Focus: Group Health Plans Major Cases/Criminal Cases

Upside of an Audit

Free audit!

Clean bill of health from the DOL

Repeat audits of the same sponsor are rare

Corrections go to plan participants

Downside of an Audit

Time, energy, and expense

Likelihood of multiple plans being audited at the same time

Cost of corrections and potential excise tax

Potential litigation and penalties

Ineligible for DOL self-correction program

Why My Plan?

Indicators on Form 5500 Participant Complaints National Projects

o Health Benefit Security Projecto Fiduciary Service Provider Feeso ESOPo REACT

News Reports and Court Filings Location Random (SIP Project)

Phase 1: Introduction and Request Letter

The Call:o To inform you of the audit and arrange

dates for onsite visit and document production

o Contact ERISA counsel, but verify availability quickly and consider proposing alternate locations

The Letter:o Confirm the dates of the onsite visito List of documents to be produced

Make three important calls:o ERISA counselo The investigator

Clarify the scope and dates for documents to produce

Sample setsProduce documents electronicallyDesk audit

o Current and past service providers

After you receive the letter and before the onsite begins:

Review all documents to be produced Work with ERISA counsel to identify potential

issues and determine whether to take corrective action prior to the start of the onsiteDOL looks very favorably on proactive

fiduciariesMay accept corrections, even when they may

not be “perfect” Designate a “point-person” for the investigation Make copies and organize documents to

coordinate with the request letter

Phase 2: Onsite

Agenda:o Day 1 –

Introductions and preliminary questions Discuss interview schedule Review and catalog documents and request

additional information

o What you should do – Introduce the key players Get to know your investigator – build rapport Provide a quiet place to work Make point person accessible

Phase 2: Onsite

o Days 2 and 3 – Document review and request additional

information Interviews

o What you should do – Listen closely to requestsPush service providers to produce

documentsReview all documents before producing themPrep for interviews

Phase 3: Interviews

Format:o Interview format varies dramatically based on

plan type, potentially issues, and investigator styleChecklist or conversationMay be 15 minutes or multiple hours

What will they cover?o Background of the interview subjecto General plan informationo Specific details for potential issues (listen for

“odd” questions or non-checklist questions)o IDENTIFY FIDUCIARIES

Phase 3: Interviews

Preparing for interviews – key points to remember:RELAX! You know more about your plan than the investigatorEach interview subject should be able to clearly explain their responsibilities and who directs their actionsAnswer the questions…but “I don’t know” is a perfectly acceptable answer

Documents make the case, not interviews A wrong answer is not a violation of ERISA, but

don’ make confident guessesKnow in advance how long the investigator expects each interview to last

Phase 4: Ongoing Investigation

After the onsite, the investigator will review the information, complete reports, and will likely have follow-up or outstanding document requests

What you should do:o BE PATIENT – but don’t be afraid to ask for

updates From onsite to closing, investigations often

take more than a yearPrompt responses to follow-up requests and

gentle “prodding” can shorten the timeframeo Inform the investigator of any changes to the

plan or relevant personnel

During this time, the primary issues identified by the investigator should become clear:Retirement Plan:

o Untimely contributions Utilize a well defined remittance process and

ensure that the process is followedo Fees –settlor fees, excessive or unreasonable fees,

duplicate payments, or inappropriate allocations Review invoices, provider contracts, and plan trust

statements, and maintain a clear record of fee reviews

o Investments Record due diligence efforts and maintain clear

record of analysis and action

Retirement Plan (continued):o Forfeitures

Know how they may be used, and apply within the appropriate timeframe

o Distributions Make sure plan is properly applying force out and

rollover distribution provisions DB Plan – plan is appropriately calculating

distributions and responding to claimso Loans/Hardships

Make sure the plan’s policies are being followedo Fidelity Bond

Sufficient coverage, particularly for policies covering multiple plans

Group Health Planso Missing SPDo Part 7 – HIPAA

Special Enrollment Rights/Notice Nondiscrimination Mental Health Parity Wellness Plans

o Part 7 – ACA Mandates for ALL plans Waiting Periods Annual/Lifetime Limits Dependent Coverage to Age 26 Rescissions Pre-Existing Conditions

Group Health Plans (continued):o Part 7 – ACA Mandates for Non-GF Plans

Preventive Services Coverage for Emergency Services Choice of Provider Updated Claims and Appeals Procedures

o Newborns Act, WHCRA, GINA, Michelle’s Law Substantive Provisions (when applicable) Notices

o Fees When plan assets are involved, prohibited

transaction rules are applicable

ALL PLANSo Form 5500 and Audited Financial Statements (when

necessary) Office of the Chief Accountant assesses penalties,

but a plan is ineligible for the DOL’s delinquent filer program if EBSA cites untimely or missing Form 5500s during an investigation

OCA may assess penalties of up to $1,100 per day for a missing or incomplete Form 5500

o Disclosures to Participants and Beneficiarieso ERISA Claims Procedures

Consistent application and compliance with applicable timeframes

o Appropriate Electronic Disclosure Method

Phase 5: Closing or Compliance Letter

Less than one-third of investigations cite no violations of ERISA Letter will simply note the investigation is closed

and thank you for your assistance

The other two-thirds receive a voluntary compliance letter (“VC Letter”) Identifies alleged fiduciaries Details factual findings of the investigation that

DOL believes support a violation of ERISA Asks for a response within 10 business days

Phase 5: Closing or Compliance Letter

Forward the VC Letter to ERISA counsel immediatelyo Most investigators will accept an informal notice

of receipt of the letter and comment that it is under review as an initial response within 10 business days

o Discuss an appropriate timeframe for a full response Additional extensions may be allowed as long

as there is substantive progress towards a resolution

o Discuss the factual and legal findings with the investigator to frame your response

Phase 6: Discussions and Resolution

DOL’s Role:o Correcting a breach is a fiduciary decisiono The DOL is not a fiduciary, and will only

comment on the reasonableness of a corrective action

HOWEVER, resolving an issue through voluntary compliance is still a very interactive process:o After discussing the VC Letter with ERISA

counsel, express factual or legal concerns with the investigator directly

o If no concerns, ask the investigator for correction recommendations

Discuss with investigator:o Actual losso Acceptable lost earnings calculation methodso Participant allocationso Procedural changeso Correction timeframeo Documents that will verify proof of correction

NOTE that these are not negotiations, just discussions that help the fiduciary understand his or her obligations to the plan – negotiations imply a settlement, and settlements may result in penalties (ERISA §502(l) for all plans and §502(i) for welfare plans).

After discussing with investigator, promptly take corrective action and provide proof documentso Generally, DOL requires confirmation of receipt

by the plano Providing sufficient proof may not be easy and

may take several attempts Upon receipt of proof of a sufficient correction, the

DOL will send a closing letter to the fiduciary o DOL will take no further actiono Notes potential excise tax liability and mandatory

referral of prohibited transactions to IRSo Notes referral to OCA (if citing Form 5500

violations)

Benefits of resolution through voluntary complianceo Quicko Cheap(er)o Penalties generally do not apply

§502(l) and §502(i) penalties only apply if there is a settlement or court order

Do NOT ask for signed confirmation of proposed corrective action in advance

Begins to look more like a settlement than a voluntary fiduciary action

20% penalty under both sections

Phase 7: Settlement, Litigation, Penalties

Overwhelming majority of cases do not require a formal settlement or litigation

Settlement:o Most common scenario is a fiduciary that has

insufficient funds to make a full correction within a reasonable timeframe

o Prohibited transaction exemption allows for repayment plans

o Requires the fiduciary enter into a tolling agreement, if necessary

o 502(l) penalty will apply

Litigation Referralso Most common scenarios are abandoned plans or

consent decrees to reallocate a fiduciary’s personal account to affected participants

o For disputed or unresolved issues: Investigators generally warn in advance that

a case will be forwarded to the Solicitor of Labor True litigated issues are very rare

VERY slow - Solicitor of Labor requires DOJ approval to file a complaint (up to 6 months)

Solicitor’s attorneys are likely to negotiate502(l) penalties will likely apply

Penalty Assessmento DOL will mail letter citing “applicable recovery

amount” and the amount of the penaltyo Penalty generally allocated among liable

fiduciaries based on amount paido Good faith waiver or hardship waiver

Limited regional discretion to decrease penalty

Full waiver rarely approvedo If not paid after waiver is denied, will be referred

for collection

Conclusion

Always be audit ready Be proactive and get ERISA counsel

involved early Be organized and responsive Know your fiduciaries Let the investigator do the heavy lifting:

o Ask for clarification and updateso Ask for suggestions regarding

corrections It’s never too late to avoid litigation

Questions?

Thank you for your attention, and please feel free to call or email if you have any questions:

o Chris Allesee – callesee@graydon.como (513) 629-2727

© graydon head & ritchey llp preparing for a dol audit what to expect and how to survive an...

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