For a copy of the following presentation, please visit our

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.

This UBA Employer Webinar Series is brought to you by United Benefit Advisorsin conjunction with Jackson Lewis

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United Benefits Advisors:DOL Audits of Health Plans

Presented by:Avery M. Chenin, Esq. [email protected]

Teresa Y. Huang, [email protected]

June 11, 2013

mailto:[email protected]



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About the Firm

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

DisclaimerThis 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.)

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Our Program Today

A Few Words on Health and Welfare Plans

U.S. Department of Labor (“DOL”) Background

What to Expect if your Plan is auditedo 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 Measures5

What is a Health and Welfare Plan?

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 otherwiseo Medical, surgical, hospital care or benefits, oro Benefits in the event of sickness, accident, disability, death,

unemployment, vacation, apprenticeship or training programs, day care centers, scholarships funds, or prepaid legal services

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What Governs Health and Welfare Plans?

Complex set of Federal and state statutes and regulationso 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

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DOL Background

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 TXo Multiple District Offices in almost every state

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DOL Background (Continued)

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

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http://www.dol.gov/ebsa/aboutebsa/org_chart.html




“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

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EBSA Chain of Command for Auditso Investigatoro Senior Investigator/Group Supervisorso Associate Regional Directors and Regional Directorso 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)

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What Prompts an Audit?

Participant Complaints

Referrals from Fiduciaries or Plan Service Providers (rare)

Audit flags from Form 5500o Delinquent contributionso Late filings

National Initiatives

Random Selection

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Notice of a DOL Audit

DOL Notice of an Audit may beo Via a phone call from an investigator, oro A written document request

Documents Requested - Short Form:o Plan Documentso Employee Notices and Summary Plan Descriptiono Summary Payroll Registers and Claimso Board Minutes Relating to the Plano Form 5500

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Notice of a DOL Audit (Continued)

Documents Requested – Long Form: Short Form Plus:o List of Plan Officials and Service Providerso Premium Payments (if not self-insured)o Certificate or Evidence of Coverage (if not self-insured)o Insurance Policies (if not self-insured)

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Scope of a DOL Audit

Plan Documents

Plan Administration and Operationso Required Disclosures and Other Employee Communicationso Claims Procedures

Fidelity Bond Coverage

Funding and Investment of Plan Assets

Appointment, Replacement, and Indemnification of Plan Fiduciaries

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Initial Steps Upon Receiving the DOL Notice

DO:o Notify your ERISA counsel

(and general corporate counsel) immediately

o Work with ERISA counsel to produce the requested documents

o Tender the DOL Audit

• If the company has fiduciary liability insurance

DO NOT:o Ask what prompted the

audit

o Volunteer documents or information that is not requested

o Ignore the notice

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Document Production

Sources of Records and Information:o Internal Employees: Executives, Office Managers, Human

Resources, Payroll, In-House Counselo 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

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Document Production (Continued)

Be Organizedo Stick to DOL’s checklist for organizing principleo Arrange in chronological (or reverse chronological) order within

each numbered categoryo Compile in indexed binders (or numbered folders if providing

electronically)

Be comprehensive: o Explain the absence of missing information or documentso Identify compliance problems (if any) in advance

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Pay attention to dateso Most requests are limited to most recent 3 full yearso 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

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Comprehensive, organized, and timely responses:o Often reduce or eliminate the need for an interview or on-site

reviewo Demonstrates good faith efforts to cooperate with the audit or

investigationo Establishing a rapport with the investigator will help if corrective

actions are required to close the audit

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DOL Interviews or On-Site Reviews

If the DOL requests an interview or insists on reviewing documents on-site:o Review any compliance issues with ERISA counsel in advanceo Arrange for separate representation of fiduciaries (as applicable)o Determine who will be interviewed (person most knowledgeable)o Arrange to have counsel presento Designate an appropriate location for the interview/review

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DOL Interviews or On-Site Reviews (Continued)

Selecting an appropriate location:o Provide comfortable, usable working spaceo Avoid high traffic areaso 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

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DOL Interview Protocols

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 operationso Be prepared to address compliance issues and propose or

describe corrective measureso Be available for at least 3 hours if not the full day

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DOL Interview Protocols (Continued)

The Interviewee should (continued):o Respond honestly and as specifically as possibleo Address only the questions askedo 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 Plano Offer to take the DOL Investigator out to luncho Use the interview as a forum for discussing (or complaining

about) political views or any matters not related to the Plan

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Throughout the Audit

Be Professional

Be responsive to DOL requests for information and documents

Keep a detailed record of every interaction with the DOL

Be patiento Even after the initial document review or interview, the DOL may

ask for supplemental documents or information over an extended period of time

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How Will the Case be Resolved?

Outcomes:o No actiono Corrective Measures Requiredo 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)

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How Will the Case be Resolved? (Continued)

If a Problem is Identified: Voluntary Compliance Letter (“VC Letter” or “VC Notice Letter”)o Signed by Regional Directoro Plan Fiduciaries have 10 days to respondo DOL usually will grant at least one extension for good reasono Proof of Correction must be submitted within agreed upon

timeframeo Process (including review and acceptance of correction) can last

from a few weeks to a few months

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“No Action” Closing Letter – Several Variationso No ERISA violations foundo 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 plano Violations cited and corrected (following receipt of VC Letter)

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Occasionally the investigation just ends, sometimes without written communication or closureo Retain records of the audit o Create file memo for resolution of any issues identified during

the document productiono May request written confirmation of audit conclusiono Balance need for closure against risk of inviting further scrutiny

or request for tolling agreement

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Hot Topics

DOL National Priority: Health Benefits Security Projecto Started in 2010o Affordable Care Acto 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 Claimso Criminal Investigations of Fraudulent Medical Providers

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Hot Topics (Continued)

Plan Operations and Disclosures, particularly:o Elimination of Lifetime Limitso Extension of Coverage to Dependents to age 26o Women’s Health notices (pregnancy and cancer rights)o Certificates of Creditable Coverage

Internal and External claims and appeals

Grandfathered Planso Plan must have been in place on March 23, 2010

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Penalties

DOL may assess:o Civil Penaltieso 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

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Civil Penalties

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 amounto Settlement or Consent judgmento Penalty waiver may be available for good faith, financial or other

hardship (rarely granted)

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Criminal Penalties

ERISA §501 penaltyo Willful violation of ERISA’s reporting and disclosure

requirementso 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)

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Other Penalties

If referred to the IRS:o Potential plan disqualificationo Excise Taxes

If the matter proceeds to trial:o Attorney’s feeso Possible punitive damageso Negative press

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Proactive Measures

Effective plan governanceo Document plan sponsor/administrator procedural prudenceo Keep all plan related materials in one locationo Ensure that all plan documents, amendments, and resolutions

are signed and dated

Maintain adequate insuranceo Fidelity Bond and Fiduciary Liability Insurance

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Proactive Measures (Continued)

Have HR take ownership of the plano Learn the legal requirements and updateso Carefully review the Evidences of Coverage and all materials

provided from service providerso Seek expert advice, as neededo Establish written procedures and controls for enrollment, claims

for benefits or disputes, and ensuring timely distribution of required disclosures

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Have HR Take Ownership of the Plan (Continued)o Keep the Summary Plan Description up to date and accurateo Keep the Summary Plan Description and all notices easily

accessible to participantso Response promptly and effectively to participant inquirieso Timely file all Forms 5500

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Have HR Take Ownership of the Plan (Continued)o Conduct periodic internal audits to ensure complianceo Take advantage of resources freely available, like the self-

compliance 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

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http://www.dol.gov/ebsa/healthlawschecksheets.html

http://www.dol.gov/ebsa/healthlawschecksheets.html


Identify and correct any errors or issues before the DOL identifies the problemso 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

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DOL Voluntary Fiduciary Correction Program (VFCP):o 19 covered transactions subject to VFCPo Model application availableo Supporting documentation and proof of correction requiredo 3-year bar from reapplyingo Usually no penalties but must pay “lost earnings” or “restoration

of profits” to plan as part of correction

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DOL Delinquent Filer Voluntary Compliance Program (DFVCP):o Reduced penalties for late or missing filing of Form 5500o Ineligible if the Office of the Chief Accountant issues a notice of

an intent to assess a penaltyo Caution: May raise audit risk

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Concluding Remarks

Know the Plan

Know the Legal Requirements

Consult the Experts as Needed

Correct Errors in Advance

If Audited:o Immediately consult ERISA counselo Be professional, organized, and comprehensiveo Do not panic

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Questions?

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Workplace law. In four time zones and 47 major locations coast to coast.

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