Employee Retirement

Income Security Act

1995 Report to Congress

Employee Retirement

Income Security Act

1995 Report to Congress

U.S. Department of Labor

Pension and Welfare Benefits Administration

Jan.

Apr.

July

Oct.

Feb.

May

Aug.

Nov.

Mar.

June

Sept.

Dec.

Retirement Savings

Educational Outreach

Program

Legislative Initiatives

Enforcement Recoveries

401(k) Top Ten Warning Signs
This publication has been developed by the

U.S. Department of Labor,

Pension and Welfare Benefits Administration,

and is available on the Internet at:

http://www.dol.gov/dol/pwba

For a complete list of PWBA publications, call the

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This material will be made available to sensory

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Employee Retirement

Income Security Act

1995 Report to Congress

Employee Retirement

Income Security Act

1995 Report to Congress

U.S. Department of Labor

Alexis M. Herman, Secretary

Pension and Welfare Benefits Administration

Meredith Miller, Deputy Assistant Secretary

U.S. Department of Labor

Alexis M. Herman, Secretary

Pension and Welfare Benefits Administration

Meredith Miller, Deputy Assistant Secretary
Introduction ...................................................................

1995 Highlights .............................................................

Message from the Deputy Assistant Secretary............

Enforcement ..................................................................

Participant Assistance/Public Education.....................

Exemptions....................................................................

Regulatory Activities.....................................................

Policy and Legislative Analysis....................................

Accounting and Auditing..............................................

Research.........................................................................

ERISA Advisory Council...............................................

Table of Contents

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The Pension and Welfare Benefits

Administration (PWBA) of the U.S.

Department of Labor protects the integrity of

pensions, health plans and other employee

benefits for more than 150 million people. The

agency’s mission includes administering and

enforcing the fiduciary and reporting and

disclosure provisions of Title I of the

Employee Retirement Income Security Act of

1974 (ERISA). The provisions of Title I were

enacted to address public concerns that funds

of private employee benefit plans were being

mismanaged and abused.

Since its enactment in 1974, ERISA has been

amended to meet the changing retirement and

health care needs of employees and their

Introduction

1

families. The role of PWBA also has evolved

continually to meet these challenges. In 1985,

the Consolidated Omnibus Budget

Reconciliation Act (COBRA) was passed, and

PWBA was charged with issuing regulations

regarding certain notification requirements.

PWBA accomplished its mission through the

collective efforts of seven major offices that

either administer policies or carry out

initiatives in the following areas: enforcement,

participant assistance, exemptions, regulatory

activities, policy and legislative analysis,

accounting and auditing, and research. The

agency also provides staff for a bipartisan,

independent council that appraises the

programs instituted under ERISA and makes

recommendations to the Secretary of Labor.

This report details the 1995 accomplishments

of the agency in executing its mission.
1995 Highlights

2

The Pension and Welfare Benefits

Administration had a year characterized by

several innovative initiatives, which were

evident throughout its program operations.

In the enforcement arena, PWBA expanded its

strategy to include a new on-going area of

emphasis — an investigative presence in the

area of smaller pension and welfare plans.

The agency’s efforts in this area were

especially important given the rapid increase

in the number of participants and assets in

these plans.

Agency efforts to investigate allegations of

fraud and misconduct among plans and

employers, particularly the failure to properly

administer employee 401(k) contributions,

uncovered some patterns of abuse. The result

was that the agency launched its national

Employee Contribution Project, which

addressed the failure of some employers to

remit employee contributions to 401(k)

pension benefit and health care plans.

In the regulations area, PWBA issued an

interpretive bulletin on the legal standard

under Title I of ERISA for a fiduciary’s

selection of an annuity provider, as well as

proposed regulations relating to the timing of

employee deposits of participant contributions

to employee benefit plans. PWBA also issued

proposed guidance concerning standards for

determining whether an employee benefit plan

is established, or maintained, pursuant to one

or more collective bargaining agreements for

purposes of Sec. 3(40) of ERISA.

PWBA made tremendous strides in educating

Americans about retirement savings to help

them better prepare for life after work through

its Retirement Savings Education Campaign.

The agency assembled a broad-based public/

private partnership to educate the public on the

need to save for retirement and to heighten

public interest in the area of retirement

security. With respect to participant

assistance, it also adopted new customer

service standards that lessened the response

times devoted to participant inquiries.

The agency’s legislative activity in 1995

included assuming a primary role in the

Administration’s pension simplification

proposal and in a revised bill to strengthen

audits of employee benefit plans. PWBA’s

research program produced two major

statistical publications, several major health

policy studies, and a number of pension

research projects.

In the area of accounting and auditing, the

agency initiated the Delinquent Filer Voluntary

Compliance Program to encourage plan

administrators to file previously unfiled Form

5500 Series annual reports and initiated an

educational outreach program, whereby

seminars were conducted throughout the

country to brief the plan benefits community

on the Form 5500 filing requirements and to

give overviews of the Department’s

enforcement program.

In processing exemptions in 1995, the agency

ended the year with 165 of the 258 exemptions

filed being granted, 112 either being denied or

withdrawn, and 176 still under consideration.
This year has been one of challenges and successes at PWBA,

including the achievement of several first-time accomplishments in

which the staff can take tremendous pride.

The Retirement Savings Education Campaign raised public

awareness of the need for Americans to save and plan for their

retirement and built a coalition of private-sector partners committed

to retirement education.

Workers found help for protecting their pensions and preventing

401(k) plan fraud through the Employee Contribution Enforcement

Project.

The legal standard under Title I of ERISA for a fiduciary’s selection

of an annuity provider was outlined in Interpretive Bulletin 95-1.

The Delinquent Filer Voluntary Compliance Program, which reduced monetary penalties for

employee benefit plan administrators, encouraged voluntary compliance with federal pension law.

An improved customer service effort in the agency’s technical assistance — and throughout the

agency — helped workers learn more about their rights under ERISA and their entitlement to

benefits.

The hard work and dedication of PWBA’s staff this year has been a tremendous factor in helping

American workers secure their pension and welfare benefits.

Message from the Deputy Assistant Secretary

3

Deputy Assistant Secretary

Meredith Miller, PWBA
The Office of Enforcement (OE) is responsible for

overseeing and implementing the agency’s

investigative programs. Through 15 regional and

district offices, it conducts investigations to detect

civil and criminal violations of Title I of ERISA,

related Labor Department violations and criminal

laws relating to employee benefit plans.

In 1995, OE opened 4,773 civil investigations and

98 criminal investigations. There were 93 persons

indicted as a result of criminal investigations in

which PWBA was involved. Overall, the

enforcement program recovered $388.8 million for

private benefit plans.

Employee Contribution Project

PWBA initiated in February 1995 one of the most

comprehensive and expansive projects in the

agency’s 21-year history — the Employee

Contribution Project. This project was designed to

detect and correct either the mismanagement or

misappropriation of employee contributions by

employers to pension and welfare benefit plans,

with an emphasis on 401(k) plans.

The project was launched as a national

enforcement initiative after the agency received an

increase in the number of complaints about 401(k)

plans. The agency consensus was that an

intensive, nationwide initiative would raise the

visibility of the problem and encourage employees

to report potential violations to PWBA.

It would also discourage this type of violation in

the employee benefit community.

By December 1995, 497 401(k) investigations had

been opened; of that number, 156 had been closed,

and $3.5 million had been returned to 401(k) plans

due to this effort.

Other Agency Initiatives

Other national enforcement initiatives in which the

agency focused its efforts and resources in 1995

included:

Enforcement

Annuity Project

Since April of 1990, PWBA has been

conducting a national investigative project

focusing on pension plans’ selections of

insurance companies to provide annuities

that may have placed the benefits of

participants and beneficiaries at risk.

MEWAs

PWBA conducted on-going investigations

of multiple employer welfare

arrangements (MEWAs), which pool small

employers to create a larger entity with

stronger negotiating power to purchase

health or other welfare benefits. Many of

the arrangements were operated by

unscrupulous promoters who would sell

the promise of inexpensive health benefit

insurance, but then default on their

obligations.

Derivatives Project — Other

Agency Initiatives

A project designed to identify ERISA

plans that are involved in speculative or

risky derivative investments was initiated

by the agency, in response to concerns

pertaining to potential problems with the

plans’ use of derivatives.

Proxy Voting Project

This project examines pension plans and

their investment managers’ proxy voting

practices. Opened investigations involved

44 ERISA plans and 12 investment

managers with stock in five selected

companies. The final report was

completed and distributed in February

1996.

Criminal Investigations

Criminal investigations and prosecutions

continued to be a vital part of PWBA’s

enforcement program. They are

particularly effective in situations where

civil enforcement would provide no

4
meaningful relief or egregious conduct is

evolved.

Administrative Services Only

(ASO) Project

PWBA continued to examine on a

nationwide basis Blue Cross and Blue

Shield associations and other similar

insurance providers that have ASO

arrangements with self-funded health

plans. Prior year investigations have

found that providers have negotiated for

discounts, rebates and credits with medical

service providers. They failed to disclose

this information, and did not pass

discounts to self-insured plans or their

sponsors, who reimbursed and paid fees to

Blue Cross based on unreduced charges.

Real Estate Valuation Project

PWBA continued to investigate the

alleged overvaluation of properties held by

commingled real estate funds in which

pension plans invest. The effects of

overvaluation of real estate held by

commingled funds may include plans

overpaying for the investments, being

overcharged for related management fees,

or being stranded if other plans cash out at

inflated values.

Civil Cases

Many of the civil cases mirrored some of

the agency’s principal initiatives. The

civil case brought against New York plan

official Ralph Corace on Oct. 18, 1995,

represented the largest amount of losses

alleged at that time in a 401(k) plan. Yet,

the agency was equally vigilant in

prosecuting cases where abuses occurred

in other areas, such as those pertaining to

annuities and ASOs. The following is a

listing of some of the significant civil

cases brought by the Department in 1995.

(Where applicable, an agency initiative

that is targeted by a specific case is noted in bold

at the end of the narrative.)

Reich v. Corace

10-18-95

New York, N.Y.

Ralph Corace, owner of Job Shop Technical

Services, Inc., failed to deposit employee

contributions owed to the company’s 401(k) plan.

The investigation discovered that up to $2.7

million in contributions from as many as 300

participants may have been improperly used. Job

Shop, which became defunct, operated as an

employee leasing company for engineers and

consultants nationwide and maintained a 401(k)

plan for 755 participants.

The Department’s lawsuit sought restoration, with

interest, of all losses suffered by the plan and

participants, replacement of both Corace and Job

Shop with an independent trustee, and a

permanent bar from administering any plans

covered by ERISA. (Employee Contribution

Project)

Reich v. Blue Cross/Blue Shield of

Massachusetts

11-28-95

Boston, Mass.

Blue Cross/Blue Shield allegedly retained the cost

savings owed to the plan that resulted from

reductions in the costs of hospital services for

covered participants and beneficiaries. The

company also allegedly billed the plans more than

the amount owed to hospitals for medical services

and retained the excess payments for its own use;

calculated fees on the unreduced charges rather

than the lower amount paid by hospitals in cases

where plans were billed on a percentage of total

benefit payments; and inflated co-payments paid

by participants and beneficiaries by basing the

calculations on the unreduced charges for medical

services.

5
The Department asked that the court require Blue

Cross/Blue Shield to reimburse the plans,

participants and beneficiaries for the amounts,

which will be determined by an independent

accountant appointed at the company’s expense.

(Administrative Services Only Project)

Reich v. Raymark Industries, Inc.

10-17-95

Stratford, Conn.

The U.S. Department of Labor filed a lawsuit

against Raymark Industries, Inc. and Raytech

Corporation alleging its officials paid Executive

Life almost $50 million to fund pensions for more

than 2,000 employees covered by three pension

plans.

Raymark Industries was unable to make

contributions to its pension plans in 1984 and

1985 because of severe financial problems

following lawsuits over its manufacture of

asbestos. Raymark officials terminated two of the

plans and bought annuities from Executive Life.

Raymark officials were alleged to have improperly

selected Executive Life annuities to avoid paying

additional contributions. The officials allegedly

failed to adequately consider Executive Life’s

financial stability, credit worthiness and ability to

pay claims. They also allegedly did not fully

evaluate Executive Life, which had the least

expensive bid, against other insurance companies’

claims.

Raytech once owned 100 percent of the stock of

Raymark Industries’ parent corporation, Raymark

Corp. The Labor Secretary originally sued

Raytech on the grounds that it was also responsible

for Raymark Industries’ liabilities.

Universal Friction Composites, a company that

agreed to assure liability for certain benefits

payments to Raymark’s retirees, will make more

than $300,000 in payments to cover the shortfall of

annuity payments that occurred after Executive

Life was acquired by the state of California in

1991. The terms of the state’s

rehabilitation plan for Executive Life

provided for all annuity payments except

the shortfall. (Annuity Project)

Reich v. McCrory Corporation

12-12-95

York, Pa.

McCrory Corporation, a national chain of

discount variety stores, imprudently

selected Executive Life Insurance

Company to pay pension benefits for

certain active and former employees of the

company, and its affiliates, after the plan

was terminated in 1985. Executive Life

was placed in receivership by the state of

California in 1991. The state’s

rehabilitation plan required Aurora

National Life Assurance Company to

purchase and execute the insurance

business of Executive Life.

McCrory agreed to purchase an annuity

contract or similar insurance product to

completely cover any benefit shortfall

owed to participants covered by the

Executive Life annuity contract. (Annuity

Project)

Reich v. Tyco International, Ltd.

9-25-95

Exeter, N.H.

Tyco International Ltd. and its subsidiary

Grinnell Corporation reached an

agreement with the Labor Department to

make periodic payments to cover any

shortfall in retirement benefits to

participants in 34 states and Canada,

whose benefits were funded through

Executive Life Insurance Company of

California.

The company employed 14,000 people

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worldwide and produced and distributed a

wide range of fire protection equipment. It

merged with Grinnell in 1986 and

subsequently terminated the Grinnell

pension plan and formed a new pension

plan that covered those employees.

Approximately 334 participants were

covered by the Grinnell pension plan

before the merger. The company used

approximately $10.7 million in plan assets

to purchase annuities from Executive Life

to fund their benefits.

Under the agreement, Tyco and Grinnell

agreed to pay any shortfall and amounts

not paid under the rehabilitation plan,

which was implemented after the state of

California put Executive Life in

receivership. Tyco had been making

payments to workers since 1991 to

compensate for the shortfalls in benefit

checks. (Annuity Project)

Reich v. Parker

6-16-95

Houston, Tex.

More than $7.4 million has been recovered

for the retirement plan of Parker Brothers,

Inc. under a settlement agreement with

plan trustees, the company and the Labor

Department. The trustees of Parker

Brothers, Inc. allegedly invested more than

$7.1 million of plan money in highly

speculative loans to individuals and

companies.

Reich v. Daniels

12-8-95

Lexington, Mass.

Alfred C.W. Daniels of the now defunct H.

H. Aerospace Design Company, Inc., has

been ordered by the U.S. District Court in

Boston, Mass., to pay more than $2

million to the Pension Benefit Guaranty

Corporation, which under the law, assumed

trusteeship and started plan termination

proceedings in 1993 because the pension plan

lacked sufficient assets to pay retirement benefits.

The defined benefit plan covered as many as 170

employers of the company.

Daniels is alleged to have commingled plan assets

with his personal monies and then failed to

account for mission plans assets while he was

acting in a fiduciary capacity. The Department of

Labor filed suit in January 1995 seeking both the

monetary and injunctive relief. A consent order

providing for such relief was approved by the

court.

Reich v. Norcal Waste Management , Inc.

11-6-95

San Francisco, Calif.

The Labor Department filed a lawsuit against

Norcal Waste Management, Inc. and Envirocal,

Inc., two wholly employee-owned companies,

which merged creating the merger of their stock

ownership plans.

The Department alleged in its lawsuit that the

administrative committee of the Envirocal ESOP

failed to adequately investigate the merger and to

obtain independent advice in connection with the

merger. Norcal has guaranteed, as part of the

settlement, that the Norcal ESOP will be

represented by independent advisors involving

future purchases of Norcal securities.

Reich v. Hawthorne

7-14-95

San Diego, Calif.

J. T. Hawthorne, the major stockholder at

Hawthorne Machinery Company, Inc. violated

ERISA’s provisions requiring a fiduciary to act

solely in the interests of plan participants and their

beneficiaries when he authorized a transaction for

the company to open an escrow account to

purchase real property. The Labor Department

7
obtained a consent judgment against Hawthorne

ordering him to make at least $689,465 in

restitution to the company’s profit sharing plan.

Reich v. Alperin

2-21-95

Scranton, Pa.

The Labor Department filed a lawsuit against

Alperin, Inc. and trustees of its pension plan for

improperly making more than $1.5 million in loans

to family members, friends and business associates

with plan money. According to the lawsuit, the

trustees used plan money to make 21 loans to

family, friends, customers and business associates.

The trustees were accused of treating the plan’s

assets as personal assets.

They were charged with failing to follow formal

loan procedures in making the loans. They also

failed to conduct credit checks and to investigate

the financial condition of borrowers. In additional

the trustees failed to collect outstanding plan loans

and wrote off loans without taking steps to collect

the loan balances.

The lawsuit seeks a court order to remove the

defendants from their positions with the plan and

to appoint an independent manager to oversee the

plan. The lawsuit also asks the court to require

the defendants to reimbuse the plan for all losses

resulting from their improper actions and to

permanently bar them from serving in positions of

trust for any plan governed by federal pension law.

Reich v. Bourns

1-25-95

Riverside, Calif.

Bourns, Inc., the manufacturer of electronic

aerospace components, failed to sufficiently

investigate the merits of an investment in which it

improperly loaned $7.5 million to construct a

mobile home park in Peris, Calif. The pension plan

covered 1,251 participants. The company also

allegedly failed to adequately monitor the use of

loan proceeds and authorized continuing loans

advances without determining whether

previous loan amounts were properly used.

The company has been ordered in a

consent judgment obtained by the Labor

Department to repay its employee pension

plan up to $6.55 million. The plan has

also been required by the court to transfer

the loan properties to Bourns, Inc., which

will assume all liabilities connected with

the mobile home project.

Criminal Cases

Criminal cases investigated in 1995 by the

agency included both large and small

plans, pension and health plans, MEWAs,

single employer and Taft Hartley plans,

and plans throughout the U.S., with a

variety of defendants ranging from

business owners to service providers.

Michigan v. Timberlake

1-20-95

Traverse City, Mich.

Charles W. Timberlake, former owner of

Honer Timberlake (HT) Pension Services,

Inc., in Traverse City, Mich., was

sentenced to up to 120 months in prison

for embezzling plan assets and ordered to

restore $364,663 to the AlcoeTec Wire

company’s 401(k) plan.

Timberlake was the third-party

administrator and trustee to the AlcoeTec

Wire company pension plan, which

covered approximately 60 participants.

According to court records, when

AlcoeTec Wire delivered plan funds to

Timberlake, he subsequently liquidated

plan investments for more than a 2-year

period and converted the fund to his own

use. He concealed the theft by falsifying

records furnished by HT Pension Services

and admitted using the funds to prevent

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the bankruptcy of his company.

The prosecution resulted from an

investigation by the Traverse City Police

Department in cooperation with PWBA.

The case was prosecuted by the county

prosecutor’s office.

U.S. v. Orena et al

9-8-95

New York, N. Y.

John T. Orena, and other individuals

connected with the Colombo La Costa

Nostra crime family, were charged in a

10-count superseding indictment with

conspiracy, Racketeering Influenced and

Corrupt Organizations (RICA) violations

and embezzlement, embezzling from an

employee benefit plan, and mail and wire

fraud.

The indictment charged that Orena, James

McNeil (trustees of the Teamsters Local

707 union pension funds), Thomas

Petrizzo and Kenneth Paskewicz entered

into schemes to purchase and renovate the

union headquarters site at a price that

would generate a substantial profit that

would be transferred to Victor Orena,

father of John T. and the acting boss of the

Colombo family in various crime

activities.

Other participants in the scheme were

John Marra, a builder and real estate

broker who assisted the “family” in

illegally earning large sums of money and

Nicholas Cassisimatis (aka Nick Cassis), a

real estate broker.

The indictment further charged that

McNeil, the plan trustee, used the pension

fund to award lucrative contracts to the

Dale Construction Co., which was part of

a joint venture controlled by Victor Orena.

The contracts were awarded on the basis

of bids rigged by Petrizzo and Paskewicz who

created false records. The demolition, interior

renovation and roofing jobs were awarded to Dale

Construction Company and the pension fund was

defrauded out of $1,071,500. Further action is

pending.

U.S. v. Harris

6-14-95

Pleasanton, Calif.

An eight-count indictment was returned charging

Michael F. Harris of Pleasanton, Calif., with

making false statements in government-required

pension plan documents, theft from an employee

benefit plan, and mail fraud.

Harris operated a real estate business in Pleasanton

that had a pension plan for its employees of which

he was the trustee and plan administrator. The

pension plan required Harris Realty to make

annual employer contributions. However, Harris

would put money into the plan account and then

immediately withdraw it and invest it in

speculative real estate projects in which he had a

substantial personal interest.

While a plan trustee, Harris fraudulently filed

records that indicate the plan participants had

assets valued in excess of $900,000. In fact, the

plan only had a collection of unsecured promissory

noted from Harris’ real estate ventures on which

few payments were made, and most were

uncollectible. The trial is pending. The case

resulted from a PWBA investigation.

U.S. v. Lee and Yamauchi

2-7-95

San Francisco, Calif.

The former owners of Eschelon Mortgage Co.

were charged in a 13-count indictment alleging

they defrauded three financial institutions of more

than $14 million and stole more than $140,000 of

401(k) plan money. They were also charged with

bank, mail and wire fraud and embezzlement.

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James Yiu Lee and Jonathan Yamauchi were the

former owners of Eschelon Mortgage Co., which

ceased business operations in 1993. Eschelon

operated as a retail and wholesale mortgage broker

by originating residential loans through direct

contact with borrowers. They allegedly stole

money directly from the 401(k) trust

fund that was used for company operations,

including payment of their salaries. To conceal

their theft, the defendants created a false document

to make it appear that the plan had purchased

mortgages.

The defendants — who argued they merely failed

to transfer the money from the corporate to the

plan account — sought through appeal to apply

corporate money to the amount allegedly

embezzled, but was declined by the court.

Nevertheless, they did make restitution of $34,223.

The trial is pending. The investigation was jointly

conducted by PWBA and the FBI. (Employee

Contribution Project)

U. S. v. Yamada

2-17-95

Springfield, Ill.

George Yamada, a financial investor, was

sentenced in May to 2 years imprisonment after

pleading guilty to taking money provided to him to

invest on behalf of pension plans, but used to fund

gambling and personal expenses. Yamada was

owner and operator of Midwest Associates

Pension Services, Inc., which provided

administrative and consultation services to various

employee benefit plans. In addition, he was an

agent for Prudential Insurance Company of

America and was authorized to sell insurance and

various financial instruments.

The criminal information filed in February alleged

that Yamada cashed two checks totaling $25,000

drawn on an account into which embezzled funds

had been deposited. The following day he is

alleged to have flown from Springfield to Las

Vegas, where he spent at least $14,000 in cash on

gambling. The information also charged that

Yamada received more than $405,000 between

October 1993 and April 1994 to invest for

the plan, which he used instead for

personal expenses, including gambling.

Also, he received $93,280 in pension

money from a Beverly Hills doctor, but

used the money for gambling debts.

In addition to his imprisonment, he

received 3 years supervised release and

was ordered to make restitution of

$150,000. This case was investigated by

PWBA and the FBI.

U.S. v. Malcolm and Stephanie

Cheek

3-2-95

St. Louis, Mo.

Malcolm Cheek, the former chairman of

the Y&A Group, Inc., was sentenced to 9

years imprisonment and 3 years supervised

release after pleading guilty to violations

ranging from five counts of embezzlement

of plan assets, conspiracy, and bank fraud.

Stephanie Cheek was sentenced to 37

months imprisonment. Y&A sponsored

the Y&A Group Savings Incentive Plan

and Trust, which had approximately 125

participants. Contributions were supposed

to be made on a monthly basis, but ceased

to be made between October 1990 and

March 1991. The bank fraud charges

involved double pledging of Y&A stocks

for bank loans.

The case was investigated by PWBA, the

Georgia Bureau of Investigation, the

Georgetown, S.C. Police Department, the

FBI, the Securities and Exchange

Commission and the U.S. Bankruptcy

Court Trustee.

U.S. v. Garrison et al.

3-08-95

Augusta, Ga.

A 133-count indictment was returned

against Jeanette Garrison and five other

10
defendants on charges ranging from

money laundering, bank fraud and

embezzlement of employee benefit funds.

The defendants were charged with

embezzling money from HealthMaster,

Inc.’s self-insured employee health plan.

The conspiracy charges related to a

scheme to defraud the medicare program

of millions of dollars by the submission of

fraudulent cost reports for reimbursement

to the medicare fiscal intermediary.

Garrison, president and chief executive

officer of HealthMaster, pleaded guilty the

following July to one count of conspiracy

and nine counts of filing false government

statements. She agreed to a sentence that

stipulated a 10-year ban from serving in

the medicare business and to pay

restitution of $11.5 million to Medicare

and Medicaid. Garrison also was

sentenced in October 1995 to 33 months

imprisonment, 3 years supervised release

and 200 hours of community service.

The case was investigated by the state of

Georgia, the Georgia Bureau of

Investigation and Department of Audits,

FBI, IRS, HHS/IG, with assistance from

the State Insurance Commissioner and

PWBA.

U.S. v. Hara

3-20-95

Chicago, Ill.

A Chicago car dealer, Raymond Hara, was

charged in a criminal information with

participating in a check kiting scheme in

which he allegedly embezzled $948,000

from the King Nissan Employee Profit

Sharing Plan. Hara was the plan’s trustee

at the time of the embezzlement.

He had also been charged with defrauding

the Continental Bank of more than

$470,000 through a check kiting scheme.

Hara admitted that over a 3-month period in late

1992 to early 1993, he shifted approximately

$13.4 million in checks among six businesses and

personal bank accounts. He also admitted to

embezzling approximately $700,000 from the

profit sharing plan between September 1991 and

the end of 1993.

Restitution of $947,862 was made to the plan. He

was sentenced on Sept. 26 to 27 months

imprisonment and 3 years supervised release.

U.S. v. Viana and Hook

3-24-95

Galesburg, Ill.

An indictment was handed down against the owner

of Wittek Industries and her attorney for their role

in a 1992 scheme that resulted in the loss of almost

$700,000 of pension funds. Carmen Viana entered

the U.S. in 1980 from Brazil and served as

president of an international import and export

company before being hired as the vice

chairperson for Wittek Industries, Inc. in 1989.

She subsequently became the company president

and trustee of the four pension plans sponsored by

the company. She retained George Hook as legal

counsel to advise her on financial problems

involving the company and questions pertaining to

the plans.

An affidavit filed in the case alleged Viana and

Hook devised a complex scheme through which

they were able to fraudulently obtain

approximately $696,855 in plan assets. The

money was partially used to make substantial

salary increases to Viana and periodic payments to

her $265,000 residence.

The pair also operated a sham real estate company

for which they were able to fraudulently obtain a

bank loan, under the guise of investing on behalf

of the pension fund in a real estate operation.

Although they maintained the funds from the plan

were being used to sell property that was owned by

Wittek, the money was used to pay the company’s

debt and to meet company expenses.

11
The defendants were charged with three counts

each of wire fraud and theft from a pension fund

and four counts of money laundering.

Hook maintained he was merely executing his

duties as an attorney, while serving as his own

defense counsel in the case. Viana, a Brazilian

national, became a fugitive and is presumed to be

living in Brazil. The case was investigated by

PWBA and the Criminal Investigation Division of

the IRS.

U.S. v. Hardesty

4-06-95

Topeka, Kan.

A 69-year-old Topeka attorney was charged in an

11-count indictment with embezzling more than $1

million in pension funds, money laundering and

mail fraud. He embezzled more than $2.1 million

from four clients.

In November of 1995, he was sentenced to 70

months in jail and ordered to make restitution of

$1.28 million after pleading guilty to one count

each of embezzling $1,031,000 from the National

Federal Revised Retirement Plan, one count of

mail fraud involving another client and one count

of money laundering.

Murray Hardesty was entrusted with investment

management responsibility for the pension fund

and other funds. He used the majority of the funds

— approximately $1.5 million — as venture

capital for five companies he was attempting to

launch; as payments on his home, office, a

condominium for his ex-wife and daughter; and for

credit card and country club expenses.

He maintained the scheme by providing false

reports to his clients. He indicated on reports that

the funds were invested in asset-backed securities

or mortgaged-backed securities, when he had, in

fact, already converted the money. The case was

investigated by PWBA and the FBI.

U.S. v. Ullah

5-3-95

Los Angeles, Calif.

Hameed Ullah, aka Tony Ullah, was

indicted on money laundering and asset

forfeiture charges for fraudulently

operating a multiple employee welfare

arrangement (MEWA). A superseding

indictment was also returned charging

Ullah with 15 counts of mail and wire

fraud and money laundering.

Ullah converted health plan assets to his

own use and misrepresented the plan’s

ability to pay claims from October 1992 to

November 1993, leaving thousands of

small employers and individuals with no

health insurance coverage and with $2

million in unpaid medical claims.

Ullah and several cohorts, doing business

through 15 entities, operated a scheme to

defraud employers and their employees

through health coverage programs that

falsely purported to pay medical claims

through MEWAs.

As part of the scheme, Ullah opened and

maintained approximately 41 bank

accounts in three states. He received

money from at least 2,500 employers,

representing approximately 4,000 workers,

who were continually advised by mail and

in phone conversations that benefits would

be paid.

Thirteen state departments of Insurance

and PWBA received complaints from

approximately 130 participants. Ullah, his

entities and employees have been the

subject of at least 11 cease and desist

orders filed by state insurance

departments. Subsequent to the search,

PWBA investigators executed seizure

12
Both civil and criminal cases and recoveries or indictments may continue from one calendar to the next (i.e., a case opened

in 1995 may not be settled until 1996). The numbers in the chart above represent totals for the 1995 calendar year.

warrants at California banks and almost

$500,000 was seized from Ullah accounts.

The charges resulted from an investigation

conducted by PWBA and the FBI.

U.S. v. Hay, Bartholomew

11-2-95

Orange, Calif.

Henry Hay was sentenced to 5 years

imprisonment, followed by 3 years of

supervised probation and ordered to

make restitution of $50,000 after being

found guilty of mail fraud in connection

with marketing and administering

several group health-insurance plans in

the late 1980s. He has appealed the

convictions.

Hay allegedly engaged in a scheme to defraud

the small employers for whom he designed and

administered employee health benefit plans.

Hay maintained that the plans were fully

insured, when they had only stop-loss type

insurance; withheld payment of claims and

diverted premiums for his personal use.

He also allegedly sold benefit packages to

employers who sponsored health plans and told

them the plans were fully insured, when the plans

were only partially insured for large claims. He

also collected $17 million in premiums and paid

kickbacks to two insurance company executives,

one of whom was Joseph Bartholomew, who was

also indicted. Charges against Bartholomew were

dismissed after the jury failed to reach a verdict.

This case resulted from an investigation conducted

by PWBA and the U.S. Postal Inspection Service.

13

94

3,979

93

98

4,773
One of the primary ways PWBA satisfies its

mission of protecting pension, health and other

benefits in private-sector employee benefit plans is

by helping plan participants and beneficiaries to

understand their rights, and employers and plan

sponsors their obligations under the federal pension

law.

This function is executed through the agency’s

Office of Program Services’(OPS) Division of

Technical Assistance and Inquiries in the national

office, and the 15 PWBA field offices. When

participants write, call or visit one of these offices,

they receive individualized assistance that informs

them of their rights under the law and assistance in

obtaining benefits.

Public education is also a significant part of the

responsibilities of PWBA. Through OPS’s

Division of Public Affairs, the agency provides plan

participants and the general public with educational

publications and materials on their rights and

protections under ERISA that aid in increasing

public awareness of basic pension and retirement

planning issues.

The Division of Public Affairs also serves as a

liaison between the agency and the news media. It

issues press releases on civil and criminal cases

pertaining to ERISA; answers and directs media

inquiries; holds press events to publicize agency

issues and initiatives; hosts and arranges briefings

on the agency’s mission and the U.S. pension law

for foreign delegations; and arranges speaking

engagements throughout the country for the

assistant secretary and other departmental officials

who deliver the agency’s messages on pension and

retirement savings issues.

Through the OPS’s Division of Public Disclosure,

the agency provides the press and the public with

basic financial information on employee benefit

Participant Assistance/Public Education

plans that private-sector companies file

with the Labor Department.

Technical Assistance

Initiatives

In 1995, PWBA made several

improvements to its technical assistance

program. These included new customer

service standards that dramatically

decreased response times to written and

telephone participant inquiries, and an

automated inquiry tracking system.

The Technical Assistance Inquiry Tracking

System was designed to track all public

inquiries received by the national and field

offices. Basic information is now collected

on inquiries by type (participant, employer,

plan sponsor, etc.) and by other areas,

such as subject of inquiry, disposition of

inquiry, and amount of recovery, if

appropriate. This database now provides

documentation for the number of inquiries

handled by the office and provides a

wealth of information that can be used for

policy development and enforcement

initiatives. (See charts on page 26.)

In 1995, the agency conducted its first

customer service satifaction survey. The

results show that:

99 percent of those who called the

office received a return call by the

end of the business day.

91 percent of the people who

wrote the office received a

response within 30 days.

14




Other/NA (10.52%)

Pension (46.21%)

Welfare (43.27%)

Subject of Inquiries

Calendar Year 1995

82 percent of those surveyed rated

the service average or better.

The Retirement Savings

Education Campaign

One of the most visible and successful

projects undertaken by

OPS was the Retirement

Savings Education

Campaign. Launched in

July 1995 in conjunction

with the Department of

Treasury and 65 privateand public-sector partners,

it spread an educational

message focused on

helping Americans

understand the importance

of planning and saving for

their retirement. Through

its campaign, the

Department has been a

catalyst, heightening interest in the issue of

retirement security and raising workers’ awareness

of retirement planning issues and resources.

The campaign partners have formed the American

Savings Education Council (ASEC) to undertake

initiatives to raise public awareness about what is

needed to ensure long-term personal financial

independence.

The Department and ASEC distributed educational

materials to individuals, groups, and organizations.

Two popular brochures were produced by the

agency at the onset of the campaign:

Top Ten Ways to Beat the Clock and

Prepare for Retirement — the

campaign’s signature brochure highlighting

10 important steps people can take to

prepare for their retirement.

What You Should Know About Your

Pension Rights — a booklet that gives an

overview of workers’ pension rights under

ERISA.

15

CY 1995 Inquiries Summary

Telephone 79,865

Written 16,169

Benefit Recoveries

$12.5 Million

Fiscal Year 1995

Total: 96,034

NOTE: The PWBA Technical Assistance Inquiries System for tracking

inquiries was not implemented until April 1, 1995. Data is

annualized -- based upon data available.






The Office of Exemption Determinations

administers the agency’s program for granting

administrative exemptions from the prohibited

transaction provisions of ERISA. The office

has two divisions. One is responsible for class

exemptions. The other administers the

program for individual exemptions.

ERISA prohibits certain specified transactions

between employee benefit plans and entities

defined as “parties in interest.” However, it

gives the Labor Department authority to grant

exemptions from these prohibited transaction

restrictions if an applicant can demonstrate

that a transaction is administratively feasible;

serves the interests of the plan, its participants

and beneficiaries; and protects the rights of the

plan participants and beneficiaries. The office

reviews applications for such exemptions and

determines whether to grant relief. Individual

exemptions relate to a particular plan or

applicant. Class exemptions are applicable to

anyone engaging in the described transactions,

provided the enumerated conditions are

satisfied.

In 1995, PWBA processed several exemptions

involving complex financial transactions.

Twenty-eight exemption applications were

granted by the year’s end and several others

were being considered. These involved

requests from employers to either loan money

to plans or to buy guaranteed insurance

contracts (GICs) from employee benefit plans

under circumstances when the insurer is

insolvent. GICs are a common investment for

employee benefit plans under ERISA.

A number of employers who sponsored such

plans requested permission to purchase the

GICs from their plans or to loan money to their

plans to prevent losses or delays in benefits.

Exemptions

The agency also developed an exemption

policy permitting plans to sell collateralized

mortgage obligations (CMOs) to fiduciaries of

their plans.

Issues pertaining to cross-trading transactions

— where the bank or investment advisor acts

on behalf of both parties with respect to sales

and purchases of the same securities — were

also handled by the agency. It provided

several exemptions that allowed the bank to

purchase and sell its own stock on behalf of

plans, and other funds, in order to conform to

security indices.

PWBA worked with the Internal Revenue

Service on an exemption case that resulted

from the settlement of litigation involving a

NationsBank frozen real estate collective

investment fund. The settlement provided a

number of different options to plan investors

and a substantial role for the designated

independent fiduciary.

General Motors was granted a significant

exemption involving the contribution of

$6 billion of Class E Common Stock and

$4 billion in cash to a GM defined benefit

plan. This exemption helped facilitate an

agreement between the Pension Benefit

Guaranty Corporation (PBGC) and GM to

fund the plan.

PWBA also published a final class exemption

in response to the Harris Trust Supreme Court

decision that had a major impact on many

insurance companies and the capital markets,

the insurance company general accounts, and

persons related to plan contract holders.

In other actions, PWBA granted three

exemptions that permitted employee benefit

plans to invest in asset-backed securities; two

16
connected to the demutualization of insurance

companies; three involving the conversion of

collective investment funds into mutual funds;

three involving cross-trading of securities; and

one that allowed for the sale of CMOs by

employee benefit plans to take advantage of

favorable investment opportunities that the

plans could not have entered into without an

exemption.

As an aid to plans wanting to apply for

exemptions, PWBA also issued a booklet,

Exemptions Procedures Under Federal

Pension Law, describing the Department’s

requirement for issuing exemptions.

In 1995, PWBA received 258 exemptions,

granted 165, denied or withdrew 112 and had

pending by year’s end 176.

The following is a list of the other prohibited

transaction exemptions granted in 1995 by the

agency:

Exemptions for GICs

95-2 January 18

Wilson Sporting Loan to Plan

Goods Co.

95-5 January 30

John R. Lyman Sale by Plan

Company

95-7 January 30

Lucky Electric Sale by Plan

Supply Co.

95-8 January 30

Stratus Computer, Loan to Plan

Inc.

95-13 February 10

Alucobond Loan to Plan

Technology, Inc.

95-15 February 28

American Express Loan to Plan

Company

95-17 February 28

Jerome Food, Inc. Sale by Plan

95-18 February 28

Modern Globe, Inc. Sale by Plan

95-19 February 28

Bassett-Walker, Inc. Sale by Plan

95-27 April 6

PACCAR, Inc. Loan to Plan

95-29 April 6

Virginia Fiber Corp. Sale by Plan

95-30 April 6

Central Fidelity Sale by Plan

National Bank

95-35 April 27

Shippers Paper Sale by Plan

Products, Inc.

95-44 June 7

Neiman Marcus Loan to Plan

Group, Inc.

95-46 June 15

Simplex Time Loan to Plan

Recorder Co.

95-53 June 26

Toyota Motor Sales Sale by Plan

17
95-55 June 26

Columbia Gas System Loan to Plan

95-63 July 21

Eaton Corporation Loan to Plan

95-65 July 31

The Brown Group, Inc. Loan to Plan

95-69 August 9

84 Lumber Company Loan to Plan

95-70 August 9

Universal Loan to Plan

Underwriters Group

95-78 September 6

KeyCorp. Loan to Plan

95-93 October 6

Acushnet Company Sale by Plan

95-99 October 17

Times Mirror Loan to Plan

Company

95-109 December 8

Rea Magnet Wire Sale by Plan

Company, Inc.

95-110 December 8

NEBCO, Inc. Loan to Plan

95-111 December 8

Constructors, Inc. Loan to Plan

95-112 December 8

Universal Loan to Plan

Surety Company

Exemptions for asset-backed

securities

95-26 April 6

Dillon, Read & Co.

95-59 July 12

Rothschild, Inc.

95-89 September 21

BancOne Capital

Corporation

Exemptions in connection with the

demutualization of insurance

companies

95-58 July 12

Guarantee Mutual Life

95-106 November 28

State Mutual Life

Assurance Company

Exemptions for the conversion of

collective investment funds into

mutual funds

95-33 April 27

Bank South, N.A.

95-48 June 26

Mellon Bank, N.A.

95-49 June 26

Norwest Bank, N.A.

18
Exemptions for the cross-trading of

securities

95-56 July 12

Mellon Bank, N.A.

95-66 July 31

BlackRock Financial

Management

95-83 September 13

Mercury Asset

Management International Ltd.

Exemptions for the sale of CMOs

95-45 June 15

Bank of Ashland, Inc.

95-74 August 29

First and Farmers

Bank of Somerset, Inc.

Other Significant Exemptions

95-9 February 10

Peoples Security Life Insurance Company and

Commonwealth Life Insurance Company.

Permits transactions in connection with

synthetic GICs issued by Peoples Security and

Commonwealth.

95-25 March 15

General Motors Corporation. The transaction

involves the contribution by GM of

approximately $6 billion of Class E common

stock and $4 billion in cash to a GM plan. The

Class E stock is common stock of EDS Corp.

that was acquired by GM in 1984.

The transaction reduced the unfunded liability

of the plan by approximately 40 percent.

95-31 April 12

Financial Institutions Retirement Fund.

Permits the fund, which is a tax-qualified

multiple-employer pension plan, to establish a

wholly-owned, for-profit subsidiary

corporation to provide services to employers

that are parties-in-interest with respect to the

fund.

95-39 June 1

NationsBank, N.A. Permits NationsBank,

which is maintaining a troubled real estate

collective investment fund, to purchase units

in the fund from plans invested therein. In

addition, relief is provided for the bank’s

management of property jointly owned by

plans that retain their interests in the fund and

the new trust formed by the bank to purchase

shares in the fund from the plans.

95-40 June 7

General Motors Corporation. The transaction

involves the stock index “exchange of futures

for physicals” (EFP) transaction between

certain General Motors Plans that occurred on

Nov. 30, 1993, in the amount of approximately

$730 million.

95-47 June 26

Westinghouse Electric Corporation. Permits

the contribution of certain securities by

Westinghouse to the Westinghouse Pension

Plan. The securities, which represent debt and

equity investments in private companies or

restricted stock in public companies unrelated

to Westinghouse, had a fair market value of

approximately $187 million.

95-50 June 26

Paloma Securities L.P. and Boston Global

Advisors, Inc. Permits plans to lend securities

to Paloma.

19
20

95-52 June 26

AT&T Corporation. Permits the payment of

performance fees by AT&T plans for real

estate management services.

95-104 September 13

Prudential Insurance Company. Permits

Prudential to pay an enhanced return to plans

invested in certain separate accounts.

Significant Actions Relating to Class

Exemptions

July 12

The Department granted PTE 95-60 that

permits certain transactions engaged in by

insurance company general accounts in which

a plan has an interest. Additional relief would

permit plans to engage in transactions with

persons who provide services to insurance

company general accounts.

March 26

The Department published a notice of

proposed exemption for plan asset transactions

determined by in-house asset managers.

November 27

The Department published a notice of

proposed exemption to permit certain

authorized transactions between plans and

parties-in-interest where such transactions are

subject to terms, conditions and

representations that are substantially similar to

exemptions previously granted by the

Department.
The Office of Regulations and

Interpretations is responsible for planning,

directing and carrying out PWBA’s

program for the development and delivery

of policy and technical guidance

concerning the application of most

provisions of Title I of ERISA. It is also

responsible for certain provisions of the

Internal Revenue Code, the Federal

Employees’ Retirement System Act of

1986, and other laws affecting employee

benefit plans. The office develops

regulations and interpretive bulletins, and

issues advisory opinions, information

letters and rulings. It also develops

employee benefit plan reporting forms and

provides training, technical assistance and

other guidance to facilitate compliance

with and enforcement of the fiduciary,

coverage, reporting and disclosure, and

other statutory provisions administered by

PWBA.

Following is a summary of the most

significant opinions and regulatory

guidance developed by PWBA during

1995.

Booklet on Fidelity Bonding

This booklet provided guidance

concerning the application of the bonding

provisions under Sec. 412 of ERISA.

Interpretive Bulletin 95-1

This bulletin announced the Labor

Department’s view of the legal standard

under Title I of ERISA for a fiduciary’s

selection of an annuity provider when

purchasing annuities for the purpose of

distributing benefits under an employee

benefit plan. Under this standard, plan

fiduciaries choosing to purchase annuities

have a duty to select the safest available

Regulatory Activities

annuity provider, unless under the circumstances

it would be in the interests of participants and

beneficiaries to do otherwise.

Proposed Rulemakings

PWBA published a notice of proposed rulemaking

that proposed standards for determining whether

an employee benefit plan is established pursuant to

one or more collective bargaining agreements for

purposes of the definition of “multiple employer

welfare arrangement” set forth in Sec. 3(40) of

ERISA.

PWBA published a proposed regulation defining

when participant monies paid to or withheld by an

employer for contribution to an employee benefit

plan constitute “plan assets” for purposes of Title I

of ERISA.

Significant Advisory Opinions

AO95-04A 401(b)

Clarifies how the venture capital operating

company provisions of the plan assets regulation

apply to small business investment companies.

AO95-18A 609(c)

Clarifies the obligations of group health plans

under ERISA to provide coverage for children who

are placed for adoption with participants and

beneficiaries.

AO95-19A 408(b)(1)

Clarifies how to apply the rule that plan loans be

“made available to all participants and

beneficiaries on a reasonably equivalent basis” to a

multiemployer plan involving collective

bargaining agreements that are renegotiated at

different times.

AO95-24A 403(c)(1)

Clarifies how to apply ERISA’s anti-inurement

provisions to withdrawal liability payments

21
returned to an employer that were incorrectly

assessed due to computer programming errors.

AO95-26A 408(b)(2)

Clarifies how to apply the statutory prohibited

transaction exemption for services to the

settlement of a plan’s claims against a service

provider.

AO95-11 3(32)

Clarifies that the term “governmental plan”

applies to a state retirement system covering

over 30,000 public school employees, even if

the system accepts charter school contributions

allowing that school’s 150 employees to

participate in the system while its charter was

in effect.

AO95-15 3(32)

Clarifies that the term “governmental plan”

applies to a collectively bargained, jointly

administered welfare plan primarily for almost

11,000 school district employees, even if fewer

than 250 employees of the plan or of the union

that is involved in plan administration are also

participants. .

22
The Office of Policy and Legislative Analysis

provides leadership and coordination of

employee benefit plan policy analysis, longterm policy development and legislative

analysis. The office prepares technical

analyses of legislative and policy proposals for

PWBA policymaking officials. The office also

prepares congressional and executive

departmental briefings; proposed testimony

and regulatory analyses; monitors

congressional hearings and other legislative

activity; prepares speeches and talking points;

and handles inquiries and requests for

technical assistance related to ERISA.

PWBA played a primary role in developing the

Administration’s pension simplification

proposal announced in June 1995 by the

President during the White House Conference

on Small Business. This proposal resulted in

the agency’s legislative initiative to strengthen

audits of employee benefit plans under ERISA

— a measure that was introduced during the

103rd Congress — in both the House and the

Senate. PWBA also worked on a revised audit

bill, which was later introduced in December

as S.1490 during the 104th Congress.

In addition to its work on pension

simplification, PWBA conducted significant

analyses and performed other activities on a

variety of matters related to health care reform

— including health fraud, securities litigation

reform, the bankruptcy amendments and

various legislative initiatives.

The agency was given substantial

responsibilities under the reauthorization of

the Paperwork Reduction Act (PRA). It had

the task of examining 38 regulations and

prohibited transaction exemptions to

determine compliance with PRA requirements

Policy and Legislative Analysis

Key Testimony

and resubmitting to OMB for clearance and

approval 23 PRA analyses.

During this time, PWBA also played a major

role in preparing key testimony for Department

officials.

23

February

Secretary Reich before the

Securities and Exchange

Commission on the

Commission’s concept release

proposing a safe harbor for certain

forward-looking statements

May

Assistant Secretary Olena Berg

before the Joint Economic

Committee on Economically

Targeted Investments

June

Assistant Secretary Olena Berg

before the House Committee on

Economic and Educational

Opportunities, Subcommittee on

Employer-Employee Relations, on

H.R. 1594 relating to limitations on

Economically Targeted Investments
The Office of the Chief Accountant is

responsible for enforcing the reporting and

disclosure provisions of ERISA and

administering an audit program to assure

compliance with the fiduciary requirements of

the Federal Employees’ Retirement System

Act of 1986 (FERSA).

PWBA implements a multifaceted program to

improve compliance with ERISA’s reporting

and disclosure requirements. One component

of this program is the implementation of a set

of traditional enforcement initiatives involving

civil penalties. These penalties are imposed

against plan administrators for their failure to

submit complete and accurate Form 5500

Series Annual Reports to the Department.

The agency has also established several

proactive programs designed to help educate

plan professionals and encourage voluntary

compliance through reduced fines.

Delinquent Filer Voluntary

Compliance/Educational Outreach

Programs

The agency’s reporting compliance program

includes deficient filers, late-filers and nonfilers. Almost $10 million in civil penalties

were assessed against plan administrators

under the agency’s reporting compliance

program for filing unsatisfactory Form 5500

Series Annual Reports. Approximately $22

million was assessed for late- and non-filings.

The agency recognized that to improve

compliance, plan professionals needed to be

better educated regarding ERISA’s reporting

and disclosure requirements, and that

voluntary compliance would improve if plan

Accounting and Auditing

sponsors received reduced fines as an

incentive.

Consequently, it decided in 1995 to leverage

its resources and add to its traditional reporting

and disclosure enforcement program a

proactive, voluntary compliance program.

To accomplish this objective it initiated the

Delinquent Filer Voluntary Compliance

(DFVC).

The DFVC Program was initiated by PWBA as

a successor to its 1992 Grace Period Program

to encourage plan administrators to file

previously unfiled Form 5500 Series Annual

Reports and to resolve late-filer penalties. In

addition, plan administrators of top hat plans

and apprenticeship and training plans who

missed their filing deadlines could submit

statements and elect an alternative method of

compliance in lieu of filling an annual report.

The DFVC attempted to simplify the filing

process and to reduce the financial hardship

for voluntary compliance for small businesses

through the imposition of smaller fines.

DFVC collected more than $7 million in civil

penalties and received more than 2,400 new

filings.

Educational Outreach

Under the sponsorship of the International

Foundation of Employee Benefit Plans

(IFEBP), PWBA initiated the Educational

Outreach Program. Through a series of

workshops, the agency staff presented both the

Form 5500 filing requirements and an

overview of the Department’s enforcement

program. Through December 1995, PWBA

conducted six workshops in Atlanta, Boston,

Chicago, Dallas, Denver and San Francisco.

24
the quality of plan audits with the revised

AICPA’s audit and accounting guide Audits of

Employee Benefit Plans. From the results, the

Department could not statistically conclude

that the quality of employee benefit plan audit

work had improved since its 1989 assessment.

The report identified certain contributing

factors.

Thrift Savings Plan Audits

PWBA conducted fiduciary compliance audits

of the Thrift Savings Plan (TSP), as required

by the Federal Employees’ Retirement System

Act. Audit procedures were designed to

strengthen the security of the $35 billion held

in 2.2 million TSP accounts of federal workers

and to enhance opportunities for greater net

earnings by recommending improvements in

the TSP system.

AICPA’s Guide for Auditing Employee

Benefit Plans

 PWBA continued its work with the American

Institute of Certified Public Accountants

(AICPA) to revise its guide for auditing

employee benefit plans. The updated guide,

published in May 1995, incorporated new

audit and accounting requirements issued by

the Financial Accounting Standards Board

(FASB). The guide is expected to improve

compliance with ERISA’s audit, reporting and

disclosure provisions.

PWBA referred 246 cases of potential

deficient accounting and auditing work to the

American Institute of Public Accountants’

Professional Ethics Division. Seventy were

either referred to the AICPA’s trial board or the

accountant reached a settlement agreement.

One hundred three cases resulted in remedial

corrective action letters.

No violations were found in nine cases, while

22 cases were closed for other reasons. Fiftyfive have been referred to state boards of

accountancy in instances where the AICPA

lacked jurisdiction over the accountant or the

accountant was not properly licensed.

Performance of On-Site

Workplace Reviews

PWBA continued its quality control program

for improving the audit work performed by

independent qualified public accountants.

PWBA performed 90 on-site reviews and

analyses of audit work papers that supported

the accountant’s report. These audits selected

for review were part of the agency’s special

project to assess the quality of plan audits.

The Division of Accounting Services

completed the special project in 1995 to assess

25
Research

The Office of Research and Economic

Analysis plans and administers an employee

benefits research and economic analysis

program to support PWBA policy and program

priorities. It is also responsible for

maintaining comprehensive data and statistics

on the private retirement income system and

pension plan investments that are derived from

the annual reports of the Form 5500. These

are released semi-annually in the Private

Pension Plan Bulletin to make timely

information available to research and policy

analysts. According to the Winter 1995

Private Pension Plan Bulletin, in 1991 defined

contribution pension plans held 43 percent of

the total assets of private pension plans in the

United States. This was an increase from 29

percent in 1980. Private pension plan assets

increased by 16 percent from $1.7 trillion in

1990 to nearly $2 trillion in 1991.

Pension plans have grown dramatically in

importance in the U.S. capital markets. Their

assets exceed those of the banking system and

they represent the largest financial

intermediaries at this time. The majority of

U.S. private savings are in the form of pension

plan savings. In 1995, the focus of the Office

of Research and Economic Analysis was to

improve the understanding of the private

employer-sponsored pension system and the

employment-based health benefits system.

PWBA sponsored a conference in April 1995

on the importance of pensions’ role in capital

markets. Relevant studies funded by PWBA

26

were presented and a volume of conference

proceedings was published the following year.

Findings from a 1994 survey on retiree

pension and health benefits were published in

1995 in Retirement Benefits of American

Workers: New Health Findings from the

September 1994 Current Population Survey.

Two of the highlights from this publication

revealed:

Fewer retirees are receiving continued

health coverage from their former

employer, and retirees who are able to

continue their employment-based

coverage have experienced about a 10

percent increase in real dollars in their

share of premium payments from 1988

to 1994.

From 1989 to 1994, the percentage of

pension recipients, age 40 and over,

receiving both an annuity and lump

sum benefit increased from 8 to 10

percent; the percentage receiving

benefits only in the form of a lump

sum increased from 40 to 51 percent;

and the percentage receiving only

annuity benefits decreased from 52 to

38 percent. The combined changes in

the employment-based pension and

health care system have shifted more

of both the costs and responsibilities

of retirement planning to workers.




Other Research Studies

Allocating Assets and Discounting Cash Flows: Pension Plan

Finance

Corporate Performance and Pension Plan Design

Defined Benefits, Defined Contributions and the Income

Distribution

Educational Attainment and Trends in Pension Coverage

The Health Services Industry and Health Care Reform

Legislation

Implementing Effective Total Quality Management (TQM)

Programs and the Financial Performance of Firms: An

Empirical Investigation

Innovative Firms and Pensions Plans

Levels and Trends in Economic Security Levels of U.S.

Private Wage and Salary Workers According to Available

Employment-Based Pension and Health Coverage: 1988 and

1993

101 Important References for ETI Policymakers: An

Annotated Bibliography

Optimal Diversification Strategies Given a Distant Planning

Horizon

Report to the U.S. Department of Labor & U.S. Securities and

Exchange Commission on Participant Education in

Participant-Directed Defined Contribution Plans

A Study of Household Wealth, Debt and Net Worth: The Role

of Ethnicity and of Participation in Employer-Sponsored

Health and Pension Plans

Trends in Individual and Household Pension Coverage



























27
Working Group on Defined

Contribution Adequacy

Continue to aggressively push for the

passage of pension simplification

legislation.

Work with the Treasury Department to

advocate tax policies that promote

savings and pension coverage and

develop and advocate legislation that

would relax limits on contributions to

defined contribution plans.

Streamline and stabilize regulations to

promote the expansion of pension

coverage.

Conduct additional research on

policies to minimize leakage from

defined contribution plan, while not

adversely affecting participants.

Working Group on Real

Estate Investment

Support continued Securities and

Exchange Commission registration of

real estate investment advisors.

Continue to encourage dialogue

between the real estate community and

the SEC’s Investment Management

Division.

Explore the feasibility of developing

and disseminating a publication that

details the duties of fiduciaries as they

relate to plan investments in real

estate.

ERISA Advisory Council

The Advisory Council on Employee Welfare

and Pension Benefit Plans consists of 15

members, appointed by the Secretary of Labor

to serve 3-year terms. The members must be

qualified to appraise the programs instituted

under the federal pension law.

Three members must represent employee

organizations — with at least one representing

participants of a multiemployer plan. Three

must be selected from employer organizations,

with at least one representative of employers

maintaining or contributing to multiemployer

plans and three members must be selected

from the general public, one of whom must

receive benefits from a pension plan. The six

other members must be selected from the

insurance, accounting, actuarial counseling,

investment management and investment

counseling and corporate trust communities.

The law also requires that five members rotate

off the council each Nov. 14 and that no more

than eight appointees represent any one

political party.

Council Initiatives

In 1995, the council focused on three

significant issues: adequacy of defined

contribution plans, ways to continue to educate

the public to save for future retirement needs,

and real estate as investments.

After several public forums, the three working

groups formulated and presented the following

final recommendations to the Secretary. The

views of the council listed below do not

necessarily reflect those of the Deparment.















28
Require adherence to standard real

estate valuation methods as a key

element in prudent management of

ERISA real estate portfolios.

Expect for retirement plans investing

in real estate to have a written

valuation policy, including guidelines

on appraisals and determination of

current values as required by ERISA.

Acknowledge the real estate industry’s

work in developing information

standards for real estate portfolios and

consider review and endorsement of

existing standards from prominent

industry groups.

Study the area of real estate valuation

best practices.

Attach a higher priority to review of

the proposed application for an

advisory opinion, or, alternatively, a

prohibited transaction class exemption

regarding real estate performance

based on compensation.

Working Group on Pension

Education

Aim specific messages on the

Retirement Savings Education

Campaign at certain demographic

groups, including students, union

employees, potential plan sponsors

and younger workers.

29

Expand its partnerships to reach a

wider audience.

Consider ways in which required

disclosure of plan information can be

made more educational or can direct

individuals to other sources of

information.

Facilitate distribution of basic pension

education materials through its

campaign partners, small business

assistance centers, community

colleges, extension offices and the

Internet.

Assure that the campaign is personally

spearheaded by the Secretary of Labor

and includes participation by other

Cabinet-level departments.

Refrain from mandating specific types

of education.

Resist efforts that undermine national

retirement savings objectives for the

sake of short-term government

revenue considerations.

Issue guidance on investment

education versus advice that will

reduce uncertainty and inertia in this

area.









 














Accounting

Randi L. Starr*

Deloitte & Touche

Actuarial Counseling

Zenaida Samaniego

Equitable Life Assurance Society of the

United States

Investment Counseling

Thomas J. Healey

Goldman, Sachs & Co.

Employee Organizations

(Multiemployer Plans)

Glenn W. Carlson

Arthur Andersen & Co.

Employer Organizations

(Multiemployer Plans)

Joyce A. Mader

O’Donoghue & O’Donoghue

Employee Organizations

Marguerite M. (Peggy) Connerton*

AFL-CIO, CLC

David G. Hirschland

United Auto Workers/Social Security

Department

Employer Organizations

Carl S. Feen

Cigna Financial Advisors

Peter H. Turza

Gibson, Dunn & Crutcher

Investment Management

Jim Hill

Treasurer, State of Oregon

General Public

Edward B. Montgomery

University of Maryland/Department

of Economics

Susan D. Diehl*

PenServe, Inc.

General Public (Pensioners)

Victoria Quesada

Attorney-at-Law

Insurance

Richard H. Headlee*

Alexander Hamilton Life Insurance

Company of America

Corporate Trust

Judith Mares

Mares Financial Consultant, Inc.

ERISA Advisory Council 1995 Members

*Terms for these members expired in November 1995.

30