[Federal Register Volume 61, Number 46 (Thursday, March 7, 1996)]
[Notices]
[Pages 9203-9206]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5391]
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DEPARTMENT OF LABOR
Pension Payback Program
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of adoption of voluntary compliance program for
restoration of delinquent participant contributions.
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SUMMARY: This document announces the adoption of a voluntary compliance
program which will allow certain persons to avoid potential Employment
Retirement Income Security Act civil actions initiated by the
Department of Labor, the assessment of civil penalties under section
502(l) of ERISA and Federal criminal prosecutions arising from their
failure to timely remit participant contributions and the failure to
disclose such non-remittance. The program also includes relief from
certain prohibited transaction liability. The program is designed to
benefit workers by encouraging employers to restore delinquent
participant contributions to employee pension
[[Page 9204]]
benefit plans covered by Title I of ERISA.
DATES: The program applies to certain delinquent participant
contributions that are restored to pension plans no later than
September 7, 1996. Restorative payments must relate to amounts paid by
participants or withheld by an employer from participants' wages for
contribution to a pension plan on or before April 5, 1996. Written
notification of intention to participate in the program must be
received by the Department no later than September 7, 1996.
ADDRESSES: Notification of intention to participate in the program must
be sent in writing to: Pension Payback Program Pension and Welfare
Benefits Administration, U.S. Department of Labor, P.O. Box 77235,
Washington, DC 20013-7235.
FOR FURTHER INFORMATION CONTACT:
Jeffrey Monhart, Pension Investigator, Office of Enforcement, Pension
and Welfare Benefits Administration, U.S. Department of Labor,
Washington, DC (202) 219-4377. (This is not a toll-free number).
SUPPLEMENTARY INFORMATION: Under a current regulation, issued by the
Department of Labor in 1988, assets of an employee benefit plan include
amounts (other than union dues) that a participant or beneficiary pays
to an employer, or amounts that a participant has withheld from his or
her wages by an employer, for contribution to the plan as of the
earliest date on which such contributions can reasonably be segregated
from the employer's general assets, but in no event to exceed 90 days
from the date on which such amounts are received by the employer (in
the case of amounts that a participant or beneficiary pays to an
employer) or 90 days from the date on which such amounts would
otherwise have been payable to the participant in cash (in the case of
amounts withheld by an employer from a participant's wages). 29 CFR
2510.3-102.
Except as provided in ERISA Sec. 403(b), plan assets are required
to be held in trust by one or more trustees.\1\ ERISA Sec. 403(a), 29
U.S.C. 1103(a). In addition, ERISA's fiduciary responsibility
provisions apply to the management of plan assets. Among other things,
these provisions make clear that the assets of a plan may not inure to
the benefit of any employer and shall be held for the exclusive purpose
of providing benefits to participants in the plan and their
beneficiaries, and defraying reasonable expenses of administering the
plan. ERISA Secs. 403-404, 29 U.S.C. 1103-1104. They also prohibit a
broad array of transactions involving plan assets. ERISA Secs. 406-408,
29 U.S.C. 1106-1108.
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\1\ ERISA Sec. 403(b) contains a number of exceptions to the
trust requirement for certain types of assets, including assets
which consist of insurance contracts, and for certain types of
plans. In addition, the Secretary has issued a technical release,
T.V. 92-01, which provides that, with respect to certain welfare
plans (e.g., cafeteria plans), the Department will not assert a
violation of the trust or certain reporting requirements in any
enforcement proceeding, or assess a civil penalty for certain
reporting violations, involving such plans solely because of a
failure to hold participant contributions in trust. 57 FR 23272
(June 2, 1992), 58 45359 (Aug. 27, 1993).
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Employers who fail to transmit promptly participant contributions,
and plan fiduciaries who fail to make diligent efforts to collect those
amounts in a timely manner, will violate the requirement that plan
assets be held in trust; in addition, such employers and fiduciaries
may be engaging in prohibited transactions.
As was noted in the preamble to the final regulation published in
1988, the Department of Justice takes the position that, under 18
U.S.C. 664, the embezzlement, conversion, abstraction, or stealing of
``any of the moneys, funds, securities, premiums, credits, property, or
other assets of any employee welfare benefit plan or employee pension
benefit plan, or any fund connected therewith'' is a criminal offense,
and that under such language, criminal prosecution may go forward in
situations in which the participant contribution is not a plan asset
for purposes of Title I of ERISA. 53 FR 17628 (May 17, 1988). The final
regulation defined when participant contributions become ``plan
assets'' only for the purposes of Title I of ERISA and the related
prohibited transaction excise tax provisions of the Code. The
Department reiterates that this regulation may not be relied upon to
bar criminal prosecutions pursuant to 18 U.S.C. 664.
Recent investigations conducted by the Department have revealed
numerous violations related to employers' delay in transmitting or
failing to transmit to employee benefit plans amounts that a
participant or beneficiary pays to an employer, or amounts that
employers withhold from participants' wages, for contribution to the
plans. Although the Department believes that in the vast majority of
contributory employee benefit plans, participant contributions are
handled with integrity, evidence uncovered in ongoing investigations
indicates that such delays are not uncommon.\2\ The recent enforcement
activities, which focused on participant contributions, indicate a
significantly higher frequency of violations for such investigations
than the Department encounters in general.\3\
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\2\ In the Spring of 1995 PWBA began a project to investigate
misuse of employee contributions to employee benefit plans and in
particular in 401(k) plans. As of October 31, 1995 there were 417
employee contribution investigations open and 130 cases were closed
during the year. More than $3,7 million has been recovered through
voluntary compliance in situations where employee contributions were
not placed in trust for participants.
\3\ Of the 130 closed employee contribution cases, 44, or 33.8
percent of closed cases, resulted in findings of violations of
ERISA's fiduciary provisions. This compares to a finding of
fiduciary violations in 12 percent of all other closed cases in FY
95.
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In addition, the Department, in responding to requests for
technical assistance from employers and participants, has received
information that many employers who receive participant contributions
are under the misimpression that the current regulation permits a delay
of up to 90 days in segregating such contributions, even if the
participant contributions can reasonably be segregated much sooner. The
Department has also received similar information from a variety of
other sources. Such delays deprive participants of earnings on their
contributions and increase the risk to participants and their
beneficiaries that their contributions will be lost due to the
employer's insolvency or misappropriation by the employer.
In order to better protect the security of participant
contributions to employee benefit plans, on December 20, 1995, the
Department of Labor published in the Federal Register a notice of
proposed rulemaking to revise the regulation at 29 CFR 2510.3-102 (60
FR 66036). The Department's proposal would change the maximum period
during which participant contributions to an employee benefit plan may
be treated as other than ``plan assets'' to the same number of days as
the period in which the employer is required to deposit withheld income
taxes and employment taxes under rules promulgated by the Internal
Revenue Service (IRS). The proposed regulation also solicited comments
on the advisability of other measures that the Department might
consider to address the problem of delays in transmitting participant
contributions to plans. The comment period for this proposal expired on
February 5, 1996. The Department held a public hearing on the proposal
on February 22 and 23, 1996, in Washington, DC.
[[Page 9205]]
The Pension Payback Program
In order to encourage persons who have been delinquent in remitting
participant contributions to pension plans, the Department has
determined to announce a voluntary compliance program to be known as
the Pension Payback Program. The program applies only to the
restoration of participant contributions and lost earnings to employee
pension benefit plans as defined in section 3(2) of ERISA. As described
in the following notice, the Pension Payback Program contains two
principal elements.
1. The Program will permit certain persons who are delinquent in
the remittance of participant contributions to pension plans to avoid
civil actions brought by the Department of Labor and Federal criminal
prosecutions for such delinquencies if the conditions of the Program
are met.
2. A final class exemption under section 408(a) of ERISA that is
being published in proposed form today will govern these transactions.
However, persons who participate in the Program transaction. However,
persons who participate in the Program may rely on the proposed
exemption notwithstanding any subsequent modifications made in issuing
the final exemption. Thus, on a temporary basis, pending promulgation
by the Department of the final class exemption setting forth the
condition for retroactive relief, the Department will not pursue
enforcement against persons who comply with the conditions of the
Program with respect to any prohibited transaction liability which may
have a risen as a result of a delay in forwarding participant
contributions. The Internal Revenue Service has advised the Department
of Labor that it will not seek to impose the Internal Revenue Code
section 4975 (a) and (b) sanctions with respect to any prohibited
transaction that is covered by the proposed class exemption
notwithstanding any subsequent changes to the proposed exemption when
it is finalized, provided that all the requirements of the proposed
class exemption are met.
The conditions for each of the two elements are the same and are
set forth in the following notice. In particular, the Program is
available to a person only if the delinquent participant contributions
withheld or received by an employer, excluding earnings, do not exceed
the aggregate amount of participant contributions that were received by
the employer for the calendar year 1995. The purpose of this limitation
is to prevent the Program from being available to persons involved in
particularly serious delinquencies.
The program applies only to delinquent participant contributions
that are restored to pension plans no later than September 7, 1996.
Restorative payments must relate to amounts paid by participants or
withheld by an employer from participants' wages for contribution to a
pension plan on or before April 5, 1996. Written notification of
intention to participate in the Program must be received by the
Department no later than September 7, 1996.
Under the proposed exemption, all delinquent participant
contributions must be restored to the pension plan plus earnings from
the date on which such contributions were paid to, or withheld by, the
employer until such money is restored to the plan. The earnings are
calculated at the greater of: (1) The amount that would have earned on
the participant contributions during such period if applicable plan
provisions had been followed, or (2) the amount that would have earned
on the participant contributions during such period using an interest
rate equal to the underpayment rate defined in section 6621(a)(2) of
the Internal Revenue Code during such period. In the Department's view,
this condition requires that the earnings be calculated on an account
by account basis in order to mirror the earnings the participants would
have otherwise accrued. The underpayment rate defined in section
6621(a)(2) is based on the Federal short-term rate determined quarterly
by the Secretary of the Treasury and is designed to reflect market
rates of interest rather than serve as a penalty. Courts have applied
rates determined under section 6621 in awarding prejudgment interest in
cases under Title I of ERISA. Martin v. Harline, No. 87-NC-115J (D.
Utah Mar. 31, 1992) 15 Emp. Ben. Cases (BNA) 1138, 1153; Whitfield v.
Cohen, 686 F. Supp. 188, 193 (E.D.N.Y. 1988); Whitfield v. Tomasso, 682
F. Supp. 1287, 1306 (E.D.N.Y. 1988).
Except as provided in the final class exemption, the Program does
not afford relief from civil actions that may be filed by persons other
than the Departments of Labor and Justice, and the Internal Revenue
Service. Upon finalization of the class exemption, persons who have
complied with its conditions will not be subject to the restrictions of
sections 406(a)(1) (A) through (D), 406(b)(1) and 406(b)(2) of ERISA
and the sanctions resulting from the application of section 4975 (a)
and (b) of the Code, by reason of section 4975(c)(1) (A) through (E) of
the Code, for transactions that result from such person's failure to
transmit participant contributions to pension plans in accordance with
the time frames described in the participant contribution regulation at
29 CFR 2510.3-102. The Program does not apply to criminal prosecutions
brought by State governments, although the Department has determined
not to affirmatively refer information to the States for criminal
prosecution concerning persons who voluntarily restore participant
contributions in accordance with the terms of the Program.
Notice of Adoption of Voluntary Compliance Program for Restoration of
Delinquent Participant Contributions
Pension Payback Program
The Department of Labor (the Department) today announced adoption
of the Pension Payback Program which is designed to benefit workers by
encouraging employers to restore delinquent participant contributions
plus lost earnings to pension plans. This program is targeted at
``persons'', as that term is defined at section 3(9) of the Employee
Retirement Income Security Act (ERISA), who failed to transfer
participant contributions to pension plans defined under section 3(2)
of ERISA, including section 401(k) plans, in accordance with the time
frames described by the Department's regulations, and thus violated
Title I of ERISA.
The conditional compliance program is available to certain persons
who voluntarily restore delinquent participant contributions to pension
plans. Those who comply with the terms of the Program will avoid
potential ERISA civil actions initiated by the department, the
assessment of civil penalties under section 502(l) of ERISA and Federal
criminal prosecutions arising from their failure to timely remit such
contributions and non-disclosure of the non-remittance. The Department
of Justice has indicated its support for the Program. The Department of
Labor will not pursue enforcement against persons who comply with the
conditions of the Program with respect to any prohibited transaction
liability which may have arisen as a result of the person's delay in
forwarding the participant contributions until promulgation by the
Department of a final class exemption setting forth the conditions for
retroactive exemptive relief. A notice of proposed exemption is being
published today in the Federal Register. Participation in the Program
will be available to persons who rely on the
[[Page 9206]]
proposed exemption notwithstanding any subsequent modifications to the
final exemption. The Department has further determined not to
affirmatively refer information to the states for criminal prosecution
concerning those persons who voluntarily restore participant
contributions in accordance with the Program. The Internal Revenue
Service has advised the Department of Labor that it will not seek to
impose Internal Revenue Code section 4975 (a) and (b) sanctions with
respect to any prohibited transaction that is covered by the proposed
class exemption notwithstanding any subsequent changes to the proposed
class exemption when it is finalized, provided that all the
requirements specified in the proposed class exemption are met.
The Program only applies to certain delinquent participant
contributions plus earnings that are restored to pension plans no later
than September 7, 1996. Such restorative payments must relate to
amounts paid by participants or withheld by an employer from
participants' wages for contribution to a plan on or before thirty days
following the date of this announcement. Specifically, the Program
applies to delinquent participant contributions plus earnings, provided
that the delinquent contributions outstanding on the effective date of
the Program, excluding earnings, do not exceed the aggregate amount of
participant contributions that were received or withheld from the
employees' wages for calendar year 1995. Provided that the contribution
limitation described in the previous sentence is not exceeded, the
Program will also apply, without limit, to the restoration of any
earnings on delinquent participant contributions that have been
restored to the plan prior to the effective date of this announcement.
The Program is available only if the following conditions are met:
(1) All delinquent participant contributions are restored to the
employee benefit plan plus the greater of (a) or (b) below.
(a) The amount that otherwise would have been earned on the
participant contributions from the date on which such contributions
were paid to, or withheld by, the employer until such money is fully
restored to the plan had such contributions been invested during such
period in accordance with applicable plan provisions, or
(b) Interest at a rate equal to the underpayment rate defined in
section 6621(a)(2) of the Internal Revenue Code from the date on which
such contributions were paid to, or withheld by, the employer until
such money is fully restored to the plan,
provided that the total of all outstanding delinquent contributions on
the effective date of the Program, excluding earnings, does not exceed
the aggregate amount of participant contributions that were received or
withheld from the employees' wages for calendar year 1995.
(2) The Department is notified in writing no later than September
7, 1996 of the person's decision to participate in the Program and
provided with: (a) Copies of cancelled checks or other written evidence
demonstrating that all participant contributions and earnings have been
restored to the employee benefit plan; (b) the certification described
in paragraph (6) below; and (c) evidence of such bond as may be
required under section 412 of ERISA.
(3) The person informs the affected participants within 90 days
following the notification of the Department described in paragraph (2)
above, that prior delinquent contributions and lost earnings have been
restored to their accounts pursuant to the person's participation in
the Program and, thereafter, provides a copy of such notification to
the Department. If a statement of account or other scheduled
communication between the plan or its sponsor and the participants is
scheduled to occur within this time period, such statement may include
the notification required by this paragraph.
(4) The person has complied with all conditions set forth in an
exemption proposed by the Department today.
(5) At the time that the Department is notified of the person's
determination to participate in the Program, neither the Department nor
any other Federal agency has informed such person of an intention to
investigate or examine the plan or otherwise made inquiry with respect
to the status of participant contributions under the plan.
(6) Each person who applies for relief under the Program shall
certify in writing, under oath and pain of perjury, that it is in
compliance with all terms and conditions of the Program and, to its
knowledge, neither it nor any person acting under its supervision or
control with respect to the operation of an ERISA covered employee
benefit plan:
(a) Is the subject of any criminal investigation or prosecution
involving any offense against the United States; \4\
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\4\ For purposes of this paragraph, an ``offense'' includes
criminal activity for which the Department of Justice may seek civil
injunctive relief under the Racketeer Influenced and Corrupt
Organizations statute (18 U.S.C. 1964(b)). A ``subject'' is any
individual or entity whose conduct is within the scope of any
ongoing inquiry being conducted by a Federal investigator(s) who is
authorized to investigate criminal offenses against the United
States.
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(b) Has been convicted of a criminal offense involving employee
benefit plans at any time or any other offense involving financial
misconduct which was punishable by imprisonment exceeding one year for
which sentence was imposed during the preceding thirteen years or which
resulted in actual imprisonment ending within the last thirteen years,
nor has such person entered into a consent decree with the Department
or been found by a court of competent jurisdiction to have violated any
fiduciary responsibility provisions of ERISA during such period; or
(c) Has sought to assist or conceal the non-remittance of
participant contributions by means of bribery, graft payments to
persons with responsibility for ensuring remittance of plan
contributions or with the knowing assistance of persons engaged in
ongoing criminal activity.
Signed at Washington, D.C., this 4th day of March 1996.
Olena Berg,
Assistant Secretary for Pension and Welfare Benefits, U.S. Department
of Labor.
[FR Doc. 96-5391 Filed 3-6-96; 8:45 am]
BILLING CODE 6510-29-M
