In a September 14, 2009 speech, the Assistant Secretary of the US Labor Department’s Employee Benefits Security Administration (EBSA), Phyllis C. Borzi, laid out some of EBSA’s enforcement priorities in the new Administration. She also described a new initiative to pursue criminal charges against serious violators of ERISA. All plan sponsors, administrators and other fiduciaries should be aware of these enforcement priorities.

Assistant Secretary Borzi announced that EBSA has initiated a criminal project to prosecute what she referred to as “the most egregious and persistent violations” of ERISA. As an example, Borzi identified embezzlement of plan assets, such as amounts withhold from employees’ paychecks and intended as contributions to 401(k) plans or as payment for health insurance premiums, which never reach their intended destination. She also identified individuals who knowingly file false 5500 forms – the annual reports that all plans are required to file with the government – as targets for possible criminal prosecution. This new focus on criminal charges, which could be brought against individuals as well as corporations, is in addition to the Labor Department’s ongoing efforts to address delinquent participant contributions, which Borzi said continues to be a priority.

Borzi also announced that EBSA will focus its enforcement efforts on several additional initiatives covering a wide range of issues. These include:

• fees of pension consultants and service providers. An existing project focused on the propriety and disclosure of these fees will be expanded to address situations in which the service providers use their fiduciary status to increase their compensation;
• ESOPs (employee stock ownership plans). This initiative will include issues of valuation – whether ESOPs and their participants are being overcharged for the stock acquired by the plan – as well as fiduciary self-dealing and conflicts of interest;
• bankrupt and financially distressed plan sponsors. Through its “REACT” project, the Labor Department will focus on taking legal action on to protect the interests of these participants; and
• multiple employer welfare arrangements (MEWAs). These arrangements sometimes involve health care fraud and are often put together by individuals not qualified to establish them.

Borzi noted that other regulatory activities were also underway. She said the Labor Department is working on the investment advice rule-making begun during the previous Administration, and hoped to issue a new proposed rule, with a short comment period, soon. EBSA also plans to complete its review of two plan fee/expense disclosure rulemakings in the “near future,” and by the end of 2009, to decide what action it should take with respect to target date funds.

All of these matters bear close watching by employers, plans and fiduciaries. If you would like additional information or guidance about these matters, members of Arent Fox’s ERISA Litigation Practice Group can help you.