Employee Retirement

Income Security Act

1998 Report to Congress

Employee Retirement

Income Security Act

1998 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.

Pension Plan Recoveries Pension Plan Recoveries

The National Summit on

Retirement Savings

The National Summit on

Retirement Savings

For Employees...

A Look at 401(k) Plan Fees

For Employees...

A Look at 401(k) Plan Fees

Health Benefits

Education

Health Benefits
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

toll-free Publication Hotline at:

1-800-998-7542

This material will be made available to sensory impaired

individuals upon request:

Voice phone: (202) 219-8921

TDD: 1-800-326-2577

This booklet constitutes a small entity compliance guide

for purposes of the Small Business Regulatory

Enforcement Fairness Act of 1996.

Introduction ...................................................................

1998 Highlights .............................................................

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

Overview of PWBA Office Functions...........................

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

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

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

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

Policy and Research......................................................

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

Health Care Task Force..................................................

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

Table of Contents

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2

3

4

7

23

27

31

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34

36

37
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 is to administer and

enforce the fiduciary, reporting and disclosure,

and coverage 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 has evolved

continually to meet these challenges. In 1986,

the Consolidated Omnibus Budget

Reconciliation Act (COBRA) was passed, and

PWBA was charged with certain notification

requirements under the Act. The Health

Insurance Portability and Accountability Act

of 1996 (HIPAA), the Mental Health Parity

Act of 1996, the Newborns’ and Mothers’

Health Protection Act of 1996, and the

Women’s Health and Cancer Rights Act of

1998 added new responsibilities in the

regulatory and enforcement arenas.

This report details the 1998 accomplishments

of the agency in executing its mission.
1998 Highlights

2

In 1998, the Pension and Welfare Benefits

Administration received new leadership with

the nomination of Richard M. McGahey as the

agency’s Assistant Secretary and the

appointment of Leslie B. Kramerich as the

Deputy Assistant Secretary for Policy. The

agency also organized the first National

Summit on Retirement Savings that was

cohosted by the President and the

congressional leadership, and launched in

December the National Health Benefits

Education Campaign.

In the area of enforcement, many fiduciary

issues were setteled through negotiations;

others required resolution by the courts. In

one case, the agency’s lawsuit resulted in an

agreement to restore $20 million to a local

union’s pension plan and in another case our

investigation resulted in a temporary

restraining order removing officials of a health

plan, which involved almost $25 million in

unprocessed claims spanning more than 30

states.

With respect to participant education, PWBA

introduced new publications that covered

subjects as varied as the benefit coverage

concerns of displaced workers, Pension and

Health Care Coverage: Questions & Answers

for Dislocated Workers, to the computer

concerns of the new millennium, The Y2K

(Year 2000) Computer Problem: Questions

and Answers Relating to Employee Benefit

Plans.

On the regulatory front, the agency took steps

to ensure that all participants in ERISAcovered employee benefit plans have access to

information that is timely and understandable

and that benefit requests are handled more

expeditiously. To address these issues, it

proposed amendments to its regulations

governing summary plan descriptions and

proposed amendments to its regulation

governing benefit claims procedures.

The agency also issued an interim final rule

that provided guidance under the Newborns’

and Mothers’ Health Protection Act of 1996.

The rule outlined provisions concerning

protections for mothers and newborn children

with regard to hospital stays following

childbirth.

PWBA continued its policy initiatives to

improve pension security through its

legislative proposals to simplify pension rules,

improve portability and expand retirement

savings opportunities. Under its Policy and

Research Studies Program, the agency

produced, in conjunction with the RAND

Corporation and the Urban Institute, Health

Benefits and the Workforce, Volume 2.

The agency built on past successes with the

continued operation of its Delinquent Filer

Voluntary Compliance Program to either

encourage plan administrators to file

previously unfiled Form 5500 Series Annual

Reports or to resolve late-filer penalties.
PWBA can take pride in the agency’s 1998 accomplishments in

support of its ongoing mission to protect pension, health and

employee benefits for American workers.

With respect to enforcement, the agency closed 4,823 civil

investigations, an increase of 408 from 1997, as it maintained its

efforts to correct fiduciary breaches and stem the incidence of

401(k) plan fraud.

We increased our visibility and enhanced our vital role of

educating Americans on the importance of savings for retirement

and understanding their health benefit rights in the workplace

when we organized the first National Summit on Retirement

Savings, and launched the National Health Benefits Education

campaign.

Our regulatory efforts provided further guidance on the expanded protections available to mothers

and their newborns with respect to hospital stays following childbirth. On the legislative front, we

worked to advance the Administration’s proposals and to focus on initiatives designed to enhance

pension security.

Making the filing process less burdensome for small businesses who voluntarily comply with the

requirements to file their annual reports continued to be a focus of the agency’s Delinquent Filer

Voluntary Compliance Program.

Our efforts in the area of participant assistance entailed expanded public outreach, new initiatives,

and the introduction of several new publications, including the very popular booklet For

Employees...A Look at 401(k) Plan Fees.

The ERISA Advisory Council on Employee Benefit Plans examined the quality of health care

disclosure, the practice of premature borrowing from retirement plans, and the establishment of

pension plans for small businesses.

Message from the Assistant Secretary

3

Assistant Secretary

Richard McGahey, PWBA
Overview of PWBA Office Functions

PWBA accomplishes its mission through the

collective efforts of six major offices and a

Health Care Task Force that administer

regulations and policies or carry out

initiatives in the following areas:

enforcement, consumer outreach, assistance

and education, exemption determinations,

regulatory activities, policy and research, and

accounting and auditing. The agency also

provides staff to assist the bipartisan,

independent council that appraises the

programs instituted under ERISA and makes

recommendations to the Secretary of Labor.

Office of Enforcement

The Office of Enforcement 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.

Office of Program Services

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 understand their rights, and

employers and plan sponsors their obligations,

under the federal pension law.

This function is executed through the Office of

Program Services’ (OPS) Division of

Technical Assistance and Inquiries in the

Washington, D.C., office, and the 15 PWBA

field offices throughout the nation. When

participants write, call or visit one of these

offices, they receive individual assistance from

benefit advisors who explain their rights under

the law and help them obtain benefits that

have been improperly denied.

Public education and outreach are also

significant components of the responsibilities

of PWBA. Through OPS’s Division of Public

Affairs, the agency provides plan participants,

plan sponsors and the general public with

educational publications and materials that

increase public awareness of basic health,

pension and retirement planning issues. These

materials are available on the agency’s website

and through a toll-free publications hotline.

The office coordinates two national education

campaigns — the Retirement Savings

Education Campaign and the Health Benefits

Education Campaign.

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 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 message on

pension, health and retirement issues. To keep

the public informed on PWBA’s programs and

initiatives, the office updates the PWBA Home

Page and “What’s New” section of its website

regularly.

Through the OPS’s Division of Public

Disclosure, the agency provides the public

with basic financial information on employee

benefit plans that private-sector companies file

with the Labor Department.

4
Office of Exemption Determinations

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 benefits 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 interest 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 in the

described transactions, provided the

enumerated conditions are satisfied.

Office of Regulations and

Interpretations

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 Title I of ERISA. It also is responsible for

interpreting certain provisions of the Internal

Revenue Code, the Federal Employees’

Retirement System Act of 1986, (FERSA) 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.

Office of Policy and Research

The Office of Policy and Research (OPR)

provides technical, legislative and research

analysis on health and pension benefits

legislation proposed by the Administration and

pending before the Congress. It also provides

leadership and coordination of employee

benefit plan policy analyses, prepares

congressional and executive departmental

briefings, and congressional testimony.

In addition, it is 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 annually in the Private Pension Plan

Bulletin to make timely information available

to research and policy analysts, and to

members of Congress. OPR also regularly

compiles and tracks Census Bureau data on

pension and health benefits coverage.

Office of the Chief Accountant

The Office of the Chief Accountant is

responsible for enforcing the reporting and

disclosure provisions of ERISA and

5
administering an audit program to ensure

compliance with the fiduciary requirements of

FERSA.

The office also has established several

proactive programs designed to help educate

plan professionals and encourage voluntary

compliance through reduced fines.

Health Care Task Force

The Health Care Task Force responsibilities

involve planning, directing and carrying out a

program for providing policy and technical

guidance with respect to applying the

provisions of Title I of ERISA, as amended by

health care laws affecting group health plans

and the following laws:

Health Insurance Portability and

Accountability Act of 1996

Mental Health Parity Act of 1996

Newborns’ and Mothers’ Health

Protection Act of 1996, and

Women’s Health and Cancer Rights

Act of 1998

The Health Care Task Force is responsible for

providing regulations, interpretive bulletins,

opinions, rulings, forms, training, technical

assistance and other guidance to facilitate

compliance with, and enforcement of, the

6

health care portability, non-discrimination and

other provisions of Title I of ERISA relating to

group health plans that are administered by the

Department of Labor.

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 ERISA.

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

other six 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 November 14 and that no

more than eight appointees represent any one

political party.








In 1998, PWBA opened 4,683 civil and 113

criminal investigations. The closed

investigations in 1998 included 4,823 civil

cases and 118 criminal cases.* A total of 110

indictments were also issued. Overall, the

enforcement program recovered more than

$260 million for private benefit plans.

The agency investigated several high-profile

cases in 1998 that were notable either for the

dollar amount involved and recovered or for

the number of participants affected. Two of

theses cases were Herman v. Fidelity Group,

Inc. (not to be confused with the nationally

known investment firm) and Herman v.

Bridge.

Herman v. Fidelity Group, Inc. involved

approximately $25 million in unprocessed

health claims and mismanagement of health

plan assets that covered approximately 3,600

participants in 32 states. Fidelity Group, Inc.

was the third-party administrator of these

health plans. To stem the fiduciary breaches,

the agency obtained a temporary restraining

order that removed the Fidelity Group, Inc.

officials and placed the health plan and

Fidelity Group, Inc. under the control of an

independent fiduciary. The agency’s lawsuit

also asked that the defendants restore any

losses suffered by the plan, return any assets

they illegally received, and that they be

permanently barred from servicing an ERISA

plan.

Enforcement

In the case of Herman v. Bridge, the agency

filed a lawsuit that resulted in Local 705 of the

International Brotherhood of Teamsters

agreeing to restore $20 million that was owed

to the local union’s pension plan. The dollar

amount restored to the pension plan included

$16,511,985, which represented money that

the trustees had improperly transferred to the

welfare benefit plan, plus lost earnings.

7

*The number of closed investigations in 1998 reflect civil and criminal cases that were opened

and closed during this calendar year, and those opened during previous calendar years, but closed

in 1998.
Civil Cases

The following is a sampling of the civil cases

investigated in 1998.

Herman v. Fidelity Group, Inc.

12-24-98

Elmont, N.Y.

The Department obtained a preliminary

injunction order to freeze the assets of the

trustees of the International Workers’ Guild

(IWG) health plan, two affiliated organizations

and their principals. The order stemmed from

allegations that the parties mismanaged the

assets of the health plan leaving approximately

$25 million in unprocessed health claims. The

health plan covered 3,600 participants in 32

states. The preliminary injunction was served

on Fidelity Group, Inc. (Fidelity) because it is

the third-party administrator of IWG’s health

plan.

In a lawsuit, the Department also alleged that

both the IWG and the National Association of

Business Owners and Professionals (NABOP)

were a sham union and association that

operated the plan for employers with bogus

collective bargaining agreements.

The lawsuit alleged that the trustees had

violated ERISA since 1995 by paying

excessive administrative fees from health plan

assets to Fidelity for its service as the thirdparty administrator; diverting assets of the

health plan to IWG and NABOP under the

guise of collecting sham union and association

fees; diverting health fund assets to pay the

salaries of the wives of NABOP employees

and causing the plan’s insolvency; and by

creating NABOP and IWG primarily to divert

plan assets from the payment of health

benefits.

Herman v. Bridge

12-10-98

Chicago, Ill.

The Department obtained a consent order and

judgment against the trustees of the employee

benefit plans of Local 705 of the International

Brotherhood of Teamsters. The consent order

and judgment, which were filed with a

simultaneous lawsuit, alleged the trustees

improperly transferred to the welfare benefit

plan $16,511,985, plus interest. The transfers

were allegedly made to provide financial

support to the welfare plan under the advice of

an attorney, but the pension plan participants

who were not covered under the welfare plan

received no benefit from the transfer and were,

in fact, harmed by it.

Local 705 sponsored the pension and welfare

plans for as many as 7,130 participants

employed by companies subject to collective

bargaining agreements with the union.

The consent order and judgment requires the

trustees to restore $20 million owed to the

local union’s pension plan.

Herman v. The Reinecke Agency,

(d.b.a. Dealers Association Plan, et

al.)

12-16-98

Orlando, Fla.

In Dealers Association Plan (DAP) case, a

federal district court ruled the trustees of the

health and welfare plan that DAP administered

were liable for unpaid health claims after the

plan was terminated.

8
The ruling stemmed from a November 1994

lawsuit filed by the Department against DAP

alleging the company, which administered 12

multiple employer welfare arrangements

(MEWAs), violated the federal pension law

and contributed to the failure of some of the

health plans it represented.

According to the lawsuit, DAP made no

attempt to establish premiums sufficient to pay

benefits and other plan expenses, performed

no actuarial studies, maintained no asset

reserves and paid excessive administrative

expenses. DAP also allegedly collected billing

and delinquent fees from employers and

commissions on the sale of life insurance.

The lawsuit alleged DAP collected premiums

and provided routine claims-paying services to

a variety of association plans that included the

Miami Valley plan, and similar plans of the

Georgia and Carolinas Independent

Automobile Dealers Associates.

The Miami Valley plan, which was never

formally terminated, ceased paying claims in

1991 and left outstanding unpaid claims of at

least $215,000. The trustees resigned in

November 1991. When the plan failed, there

were 38 dealers enrolled in the plan and only

67 insured members.

Herman v. Giordano, et al.

11-5-98

Little Falls, N.J.

A consent order and judgment requiring $1.5

million to be restored to the Teamsters Local

125 Retirement Fund (Fund) was obtained by

the Department. It was part of a global

resolution that included third-party lawsuits

filed by the plan trustees and separate federal

9

and state court actions that had been initiated

by the Fund.

The court alleged that the defendants breached

their fiduciary responsibilities by permitting

the plan to invest $2 million in a loan without

conducting an independent, adequate

investigation of the recipient’s ability to repay

it. The defendants also failed to review the

security on the loan and to pursue steps to

collect on it after the recipient defaulted.

The consent judgment and order stipulated

that an immediate payment of $1.1 million be

paid to the Fund from various third-party

defendants. It also permanently barred the

defendants from serving in a fiduciary capacity

to any ERISA-covered plan.

Herman v. Time Warner, Inc.

10-26-98

New York, N.Y.

The Department sued Time Warner, Inc., Time,

Inc., its subsidiaries, and officials of nine

corporate pension and health plans for wrongly

denying plan coverage to hundreds of

employees. Time Warner had misclassified a

group of workers as independent contractors or

temporary employees, rather than as full-time

employees.

The lawsuit alleged that the plan fiduciaries

regularly failed to identify or inform all

employees of their rights to participate in the

plans. Consequently, the employees were

prevented from obtaining retirement and

health benefits.

The workers were employed by Time, Inc.,

wholly owned by Time Warner, Inc. and its

subsidiaries, which include Time magazine,
10

Sports Illustrated, Fortune, Life, Money,

People, Entertainment Weekly, Time Life, Inc.,

Book-of the-Month Club and Time

Distribution Services.

The lawsuit seeks a court order appointing an

independent fiduciary to audit Time, Inc. and

to account for all employees who were

misclassified and prevented from participating

in the plans and obtaining benefits.

Herman v. Miletus Associates, Inc.

10-7-98

Albuquerque, N.M.

Miletus Associates Inc. and its president

agreed to fully reimburse the company’s

401(k) plan for all improper transfers and a

loan made from the 401(k) plan to the

defendants under a consent order and

judgment obtained by the Department.

Miletus Associates is an engineering firm that

manufactures airborne surveillance equipment.

The company’s 401(k) plan covered 29

participants and had $371,052.57 in assets as

of February 1996.

As a result of the consent order and judgment,

the company and its president, Donald Trone,

agreed to reimburse the plan for a total of

$227,110.84, which includes lost principal and

interest. A lawsuit filed on June 26 also

alleged Miletus Associates and Trone violated

their duties under ERISA when they

transferred $79,444.21 of plan assets to the

company for their own use, loaned $48,713.19

to Trone, which was not repaid in accordance

with the loan document, and distributed

retirement benefits to plan participants based

on an outdated valuation of plan assets.

Trone was barred from serving in a position of

trust for any plan governed under ERISA, and

both defendants could be assessed a civil

penalty based on $153,549.81 in improper

transactions with the plan.

Herman v. Mercy-Douglass

Corp., et al.

5-4-98

Philadelphia, Pa.

Mercy-Douglass Corp. (MDC), trustees of the

company’s pension plan and its subsidiaries

agreed to repay the company pension plan

$432,137, plus interest, resulting from a

consent judgment obtained by the Department.

The consent judgment also requires the

individual defendants to: resign their positions

as plan trustees, be barred for a total of 13

years from serving in any capacity to plans

governed by ERISA, and participate in

comprehensive training on managing ERISA

plans before re-assuming any fiduciary duties

with the plan. The consent judgment also

requires that an independent trustee be

appointed to manage the plan.

The trustees allegedly pledged more than

$500,000 of plan money as collateral on a

series of loans to a MDC division; made a

$65,000 loan to an MDC affiliate and pledged

as collateral real estate purchased with the

proceeds; failed to collect fees owed to the

plan as a condition of the collateralized loans;

made a $53,996 loan to a client of a MDC

affiliate in order to repay debts owed to MDC;

used plan money to make a $13,800 loan to a

MDC consultant; and failed to collect more

than $600,000 in contributions owed to the

plan by the subsidiaries.
11

Mercy-Douglass is the parent holding

company for four nonprofit subsidiaries that

serve elderly residents in the Philadelphia area.

The services include managing two nursing

homes, and providing medical services,

recreational activities and transportation.

MDC and its subsidiaries sponsored the

pension plan for as many as 429 participants.

In 1994, the plan had approximately $1.2

million in assets.

Herman v. Illinois Vehicle Insurance

Agency, Inc.

3-12-98

Chicago, Ill.

The Illinois Vehicle Insurance Agency, Inc.

(IVIA) and Roger Wolf, owner and a trustee to

the company’s pension and 401(k) plans,

agreed to be removed as plan officials,

permanently barred from servicing any ERISA

plan, and to repay $24,841 in outstanding

interest owed to the IVIA pension plan. The

agreement resulted from improper loans and

transfers made by IVIA and its officials,

according to a judgment obtained by the

Department. IVIA is an insurer providing

automobile insurance primarily to Illinois

residents. IVIA’s pension and 401(k) plans

covered as many as 575 employees as of Dec.

31, 1995 and had combined assets of $1.2

million.

According to the lawsuit, the defendants made

more than $2 million in improper loans from

the pension plan to Wolf’s companies,

including $350,000 in loans to IVIA and

$1,939,230 in loans to the Illinois Vehicle

Premium Finance Co. It also alleged the

defendants transferred $82,511.20 in

participant benefit and loan payments from the

401(k) plan to the account of Lincoln Towers

Insurance Agency, another company wholly

owned by Wolf, prior to making distributions

to participants.

Prior to the entry of the judgment, the

defendants restored more than $2.8 million to

the pension plan as restitution for the improper

loans, transfers made, and interest owed for

those transactions. The payments were made

both prior to and after receipt of a notice of

violation sent to them by the Department.

Herman v. Cipolla

3-2-98

Bowsmanville, N.Y.

The Bella Vista Group, Inc. of Bowsmansville,

N.Y., and company president and plan trustee

Pasquale Cipolla have agreed to repay

$1,638,867 to the company’s profit sharing

plan as restitution for substantial losses on a

series of loans made by the pension plan to

companies owned by Cipolla, under a consent

judgment and order obtained by the

Department.

In addition, the company and Cipolla agreed to

appoint an independent plan administrator to

manage the plan. Cipolla agreed to be barred

from serving in a position of trust to any plan

governed by ERISA.

In 1994, the Department sued Bella Vista

Group (BVG), its parent Innovative General

Contractors (IGC), and plan trustee Cipolla for

making $1.3 million in loans to BVG, IGC and

others from 1988 to 1993. The lawsuit alleged

that Cipolla failed to conduct credit checks

and to require security for the loans, resulting

in numerous loans being defaulted on and

ultimately resulting in losses being suffered by

the plan.
12

Herman v. Blue Cross/Blue Shield

of Massachusetts

1-30-98

Boston, Mass.

A U.S. federal judge ordered Blue Cross/Blue

Shield of Massachusetts to repay $10 million

to participants and sponsors of private-sector

health plans covered under ERISA. The

Department alleged that the health care

provider failed to make refunds to participants

and beneficiaries regarding fee reductions for

hospital services performed between 1988 to

1992 for residents of Massachusetts. Blue

Cross/Blue Shield also may be required to pay

up to $2 million in civil penalties and must

notify affected employers of any restitution

owed to them under the settlement.

A lawsuit filed in November 1995 alleged that

Blue Cross/Blue Shield of Massachusetts was

refunded approximately $180 million from

area hospitals on behalf of customers because

Massachusetts state law limited the amount

hospitals could charge Blue Cross/Blue Shield

for services rendered. The insurer was

required to refund a proportionate share of the

money to each of the self-insured plans

covered by ERISA, but failed to pass along

this money.

The lawsuit alleged that Blue Cross/Blue

Shield improperly benefitted by not refunding

the savings and by failing to take steps to

reduce the copayments of participants and

beneficiaries to reflect the reduced amounts.

Herman v. Hull

10-19-98

Syracuse, N.Y.

In a consent judgment obtained by the

Department, Hull Corporation (the

Corporation) and John E. Hull, the trustee of

its employee stock ownership plan (ESOP),

were ordered to pay $541,667 in restitution

to the plan, and to pay civil monetary

penalties to the federal government, and

were barred from serving as fiduciaries to

any plan governed by ERISA. The ESOP

was established on Jan. 1, 1991, and

contained fixed and variable contribution

components and a 401(k) plan. The fixed

and variable components were designed to

invest primarily in the Corporation’s stock.

In a lawsuit filed simultaneously with the

consent judgment, the Department alleged

the Corporation and its board of directors

voted to transfer assets of a corporate

retirement plan to the ESOP. The board also

approved an agreement under which the

ESOP purchased 40,000 shares of the

Corporation’s capital stock for more than $2

million.

According to the lawsuit, the defendants

violated ERISA by executing the

transactions to benefit the Corporation and

its shareholders; failing to conduct an

independent, good faith analysis of the

Corporation’s financial condition; paying

more than fair market value to purchase the

corporate stock; and by not retaining an

independent trustee to advise them about the

prudence of converting the retirement plan

into an ESOP.
13

Herman v. Hyde

8-4-98

Novato, Calif.

The Department obtained a temporary

restraining order freezing the assets of

Interstate Services, Inc. (ISI), Thorndyke

International, Inc. (TI) and numerous other

fiduciaries and service providers to health

plans operated by ISI. The order was issued

after more than $1 million in health plan assets

were diverted to ISI, TI and others affiliated

with a health care scheme known as The

ERISA Advantage Program. Instead of paying

benefits, the money was used to pay

administrative fees, marketing fees,

commissions and other nonbenefit expenses.

The lawsuit further alleges that Hyde and other

defendants allowed assets of the individual

health trusts to be commingled in direct

contradiction of a commitment to maintain

separate trusts to fund promised benefits of

enrolled employers.

The temporary restraining order placed The

ERISA Advantage Program under the control

of an independent fiduciary and removed the

defendants from their positions with the

Program.

Criminal Cases

This selection of criminal case summaries

investigated by PWBA and prosecuted by the

U.S. Attorney’s Office reflects a continuing

effort on the part of the agency to send a

message that stealing and engaging in fraud

involving private-sector employee benefit

plans will not be tolerated. The offenders

cover a wide cross section of society ranging

from business owners to plan trustees and

service providers. Theft and fraud occurred

in both health and pension plans, large and

small ones, 401(k)s and employee stock

ownership plans (ESOPs).

United States v. Carlow

2-3-98

Uniontown, Pa.

Frank Carlow was sentenced to 87 months

imprisonment, and ordered to pay restitution

of $4,550,679 for engaging in illegal

activities that included pension and health

plans, tax, and mail fraud. Estimated loss to

the plans is $2 million, making it the largest

tax fraud case in the western district of

Pennsylvania. On the tax evasion counts,

Carlow was charged with a conspiracy to

systematically under report employment and

coal excise taxes that totaled $10 million.

He used some of the money to fund his

personal lifestyle.

Carlow’s companies employed 400 miners,

and his scheme adversely impacted their

pension and health benefits through the false

reporting of their wages and the number of

hours worked. In addition, Carlow was

charged with providing false reports to the

union to conceal his failure to pay medical

bills incurred by his employees and payable

by him.

Carlow pleaded guilty in November 1997 to

employee benefit plan, tax, mail and

environmental fraud. He also pleaded guilty

to obstruction of justice for falsely telling a

federal district court judge, trying to recover

unpaid medical claims in a mine workers’

union lawsuit, that the amount involved was

$620,000, when, in fact, it was $1.5 million.
14

This case was investigated by PWBA, the FBI,

the Criminal Investigation Division of the

Internal Revenue Service, and the Department

of Labor’s Office of the Inspector General.

United States v. Sharpe

2-6-98

Boca Raton, Fla.

Thomas Sharpe, the former president of Blue

Chip Health Care, was sentenced to 90 days’

imprisonment and fined $2,000 in February

1998 for embezzling from his companysponsored 401(k) plan. The company, a home

health care agency, was based in Boca Raton

and operated in Florida and Ohio. An

indictment was returned against Sharpe in

September 1996, charging him with

embezzling $6,840 of employee 401(k)

contributions. He was convicted as charged in

1997. Forty-three employees were covered by

the company plan. Sharpe restored $13,966 to

the plan prior to sentencing. This case was

investigated by PWBA and the FBI.

United States v. Harmon

5-4-98

Camano Island, Wash.

Phillip Harmon, a 61-year-old Camano Island

businessman, was sentenced to 8 years in

prison, and ordered to make restitution of up to

$27 million. He was also ordered to refrain

from self-employment activities following his

release from prison, and was forbidden to sell

insurance or securities without the permission

of the probation department. His sentence

resulted from a massive fraud scheme that he

and others perpetrated upon investors and

hundreds of employees, primarily ministers of

various churches and their families. Harmon

and his associates induced them to pay

millions of dollars for nonexistent premiums

for health insurance coverage.

As part of the investment scheme, he sold

unregistered securities in the form of

promissory notes and marketed the notes to

friends and other acquaintances, promising

them a better return than the prevailing rate.

Quarterly statements were sent to customers

reflecting not only their investment amounts

but the interest at the promised rate. However,

Harmon used the investments to pay his

overhead and salaries for himself and other

business associates. He also used some of the

money to pay off investors who demanded

payment.

Similarly, in the health program scam, he and

his associates induced employer groups of

various church organizations to pay millions of

dollars in insurance premiums to two trusts

that he set up. No insurance was purchased;

rather, the money went to benefit Harmon and

others. Some of the premium was also used to

pay off investors who demanded their money

back. The total amount collected by Harmon

through the schemes was approximately $40

million.

This case was investigated by the FBI, the

Criminal Investigation Division of the Internal

Revenue Service, PWBA, the State of

Washington’s Department of Financial

Institutions and the Washington State

Insurance Commissioner.

It is estimated that 6,500 health care customers

were left uncovered nationwide. On the

pension side, plans affected covered 120

participants. There were about 230 investors

affected by the investment scheme.
15

United States v. Taylor

5-6-98

Dallas, Texas

Pikesville, Ky.

James Taylor, a former Dallas insurance

entrepreneur, was sentenced in absentia to 10

years of imprisonment, ordered to make

restitution of $2 million and to forfeit other

assets totaling $480,484. He is a fugitive

believed to be living outside of the United

States. Jurors convicted Taylor in February

1998 on 107 counts, charging him with mail

and wire fraud, and money laundering relating

to the theft of millions of dollars from

workers’ compensation programs. Taylor’s

indictment in 1997 was obtained in Pikesville

and transferred, at his request, to Dallas for

trial.

Taylor was an official of a nonprofit Irving,

Tex., group known as the International

Association of Entrepreneurs of America

(IAEA). In a court affidavit and at trial, a

PWBA investigator stated that Taylor and

others connected with IAEA diverted more

than $10 million in employer and employee

contributions that were earmarked for

workers’compensation claims. IAEA had 333

employer members that provided benefits to

approximately 16,000 employees. This case

was investigated by PWBA and the FBI.

United States v. Hook

5-26-98

Galesburg, Ill.

George Hook, a Chicago attorney, was

sentenced to 84 months’ imprisonment and

ordered to make restitution of $735,566 for his

role in stealing more than $700,000 from

employee benefit pension plans covering

approximately 200 workers. He was indicted

in 1996, along with Carmen Viana, a Brazilian

national, on charges of pension plan

embezzlement, wire fraud and money

laundering. The parties schemed to defraud

the pension funds of Wittek, Industries, Inc.,

which had plants in North Carolina and

Illinois. Viana was the company president and

served as trustee for the plans. She retained

Hook to provide her legal counsel with respect

to financial problems involving the company

and questions that she had regarding the plans.

Pension funds were laundered through shell

corporations used by Viana.

In May 1997, after a four-week trial, a federal

jury found Hook guilty as charged. Viana is a

fugitive and is presumed to be living in Brazil.

This case was investigated by PWBA and the

Criminal Investigation Division of the Internal

Revenue Service.

United States v. Helbling

6-4-98

Newark, N.J.

William Helbling, president and sole

shareholder of now defunct electronic firms,

Micro Products and Scranton Electronics, was

found guilty by a federal jury on charges of

looting more than $560,000 from a companysponsored pension plan. It covered seven

participants. Helbling was charged in an

indictment returned in December 1996 with

embezzlement, conspiracy, mail and wire

fraud, and falsifying documents required by

ERISA. He had served as the administrator of

Micro-Products Profit Sharing Plan until 1992,

but was required under a court order to sever

all ties with the plan and appoint an

independent trustee. The companies filed for
16

Chapter 11 protection in May 1990 and filed

financial statements with the bankruptcy court

disclosing a total negative net worth of minus

$3 million.

According to the indictment, Helbling took

$560,000 from the plan and deposited the

money to the company accounts in order to

prop up the companies. He then attempted to

cover the transactions by converting the profit

sharing plan to an employee stock ownership

plan with the company stock, thereby

substituting stock for the misappropriated plan

funds. He concealed the theft from his

employees by providing phony annual

statements reflecting cash balances that didn’t

exist.

To further perpetrate the fraud, Helbling,

knowing that ERISA required a stock

appraisal as an ESOP sale precondition,

contacted an appraiser to conduct a

preliminary valuation.

The appraiser advised Helbling, that while in

bankruptcy, the companies had no value, and

that any valuation would be premised on

successful emergence from Chapter 11.

When the companies failed to emerge from

bankruptcy and it became clear that Helbling

was unwilling to produce the data that would

allow for the valuation, the appraiser

withdrew. Despite the absence of an appraisal,

Helbling executed ESOP documentation

(including the stock purchase agreement and

stock certificates), substituting a one-page

letter in which he represented that, in his

“estimate,” the companies were worth $4

million.

The ESOP documents prepared in October

1991 were backdated to March and July 1991,

so that it would appear that the documentation

was in place prior to, or contemporaneously

with, the withdrawal of plan funds. He was

assisted in the scheme by lawyers who

practiced in the field of taxation and employee

benefit plans. Helbling was sentenced in

January 1999 to 8 years and one month in

prison, 3 years probation and $12,500 in

restitution. The defendants that assisted

Helbling were sentenced in March 1999. This

case was investigated by PWBA and the FBI.

United States v. Krimsky

7-15-98

Allendale, N.J.

Cleveland, Ohio

Leonard Krimsky allegedly embezzled more

than $3 million from the IAM Kent Worldwide

Retirement Income Plan, a defined benefit

pension plan sponsored by the Kent

Worldwide Machine Works in Stow, Ohio.

Kent was purchased in 1990 by Worldwide

Process Technologies, a company solely

owned and controlled by Krimsky. The plan

covered 299 participants. In 1993, Krimsky

acquired 100 percent of the stock of the

financially troubled Kent from its parent

corporation. Krimsky named himself as the

plan’s sole trustee and began to make a series

of “loans” from the plan to Kent.

According to the indictment, the plan had

more than $3.4 million in assets before

Krimsky began these financial transactions.

When he finished, the plan had lost almost 90

percent of its assets. Kent is also charged with

false statements and concealment regarding

the financial transactions. This case was

investigated by PWBA.
A parallel civil action was brought by the

Department of Labor’s Regional Office of the

Solicitor to recover the lost assets. This action

is pending in the federal district court in

Cleveland, Ohio.

United States v. Huppe

7-23-98

Syracuse, N.Y.

Ontario, Canada

Canadian national Allen Huppe was indicted

on charges of pension plan embezzlement and

wire fraud. He was arrested after attempting to

enter the United States from Canada. Huppe is

accused of embezzling $750,000 from the

Highland Nursing Home of Massena, N.Y.,

pension plan. The plan covered 115

participants.

The indictment alleges that a series of transfers

of the plan’s assets were made to banks in

Canada and Bermuda, and then transferred to

other banks and partnerships in Nigeria, Japan

and other parts of the world. Huppe informed

plan trustees on several occasions that deposit

balances at his company, Navy Street Bancorp,

were in excess of $750,000, when in fact, he

had disbursed the funds and spent them for his

personal use.

This case was investigated by PWBA and the

FBI with assistance from the Department of

Labor’s Office of the Inspector General.

United States v. Mays, et al.

8-12-98

St. Louis, Mo.

San Diego, Calif.

Kathy Lindsey, a former claims processor for

the District 9 International Association of

Machinists and Aerospace Workers Welfare

Fund, and three co-conspirators were

indicted in June 1998 by a U.S. District

Court grand jury in St. Louis for her part in

conspiring to defraud the health plan. More

than $300,000 was involved in the fraud.

All defendants have entered guilty pleas.

The plan covered 6,849 participants.

Lindsey used her position to file fictitious

claims under the instructions of Michael

Mays, a resident of San Diego, and coconspirator. As a result of the filing of these

false claims, checks were mailed to various

addresses in the San Diego, Calif.,

metropolitan area. Individual checks were

made payable to Jack Jackson, Richard

Fenster, both residents of San Diego.

The proceeds from the checks were then

split between the defendants. Lindsey was

sentenced January 1999 to 6 months in

prison, to be followed by 5 years probation

and was ordered to make restitution of

$245,546. This case was investigated by

PWBA and the U.S. Postal Inspection

Service.

United States v. Sims

9-4-98

Seattle, Wash.

David Sims, former president of a Seattle

business known as Waterfront

Reprographics and an ex-NFL football

player, pleaded guilty to one count of

pension plan embezzlement and one count

of bank fraud. He had been indicted in June

1998 in a 30-count indictment charging him

with conversion of pension plan funds, mail

fraud, money laundering, concealment of

material facts, obstruction of justice, bank

fraud, and making false statements to a

bank.

17
Sims was the trustee of the Waterfront

Reprographics, Ltd. 401(k) Plan and Trust that

covered 55 participants. He was accused of

making false oral statements and providing

false plan information, including false

statements to plan participants. The

statements showed that participant funds were

deposited in a money market account, when in

fact no money market account existed. Sims

was charged with stealing $103,999 from the

401(k) plan that includes diverted employee

contributions of $40,000. The indictment

further charged he submitted forged

documents to a bank to obtain loans in excess

of $850,000 to be used for the purchase of

properties. He also made false statements

when alleging he had rented property that had

already been sold.

The indictment also charged that the company

filed for bankruptcy protection in April 1994.

Sims, as president and majority shareholder of

the company, represented the company in

matters before the U.S. Bankruptcy Court and

U.S. Trustee’s Office. During these

proceedings, he presented false, misleading,

and evasive information to the court examiner.

Sims was sentenced in January 1999 to five

years probation.

This case was investigated by PWBA and the

Criminal Investigation Division of the Internal

Revenue Service.

United States v. Carlisle

9-4-98

New Orleans, La.

Andrew Carlisle, a former employee of the

Operating Engineers and Pipeline Health Plan,

was charged with embezzling from a health

care plan that covered 2,846 union members.

He is accused of stealing $26,423. He

perpetuated the theft by simply falsifying

claims. This was discovered by a plan

participant who complained that the plan had

filed a claim for her husband that had never

been incurred. The plan trustees obtained a

court order freezing and seizing the assets in

Carlisle’s personal account of $17,274.

Carlisle was sentenced in February 1999 to 16

months in prison. The investigation in this

case was conducted by PWBA. It represents

the first PWBA investigation that focused on

health care crimes following the passage of the

Health Insurance Portability and

Accountability Act (HIPAA).

United States v. Selman

9-10-98

Charlottesville, Va.

Joe Selman and his wife Eleanor Selman were

tried in March 1999 on charges stemming

from an 18-count indictment. The indictment

alleged that they made false reports in health

care matters; made false statements in

documents required by ERISA; embezzled

from an employee benefit plan and from

programs that received federal funds; engaged

in wire, mail and bank fraud; money

laundering; and obstructed correspondence.

The Selmans also were accused of embezzling

401(k) employee contributions from the

company-sponsored pension plan.

The Selmans were former officers of the now

defunct Duke Benefit Services, Inc. (DBSI), a

company designed to administer health care

benefit plans for a number of different client

companies. The Selmans allegedly realized

more than $2.3 million from the embezzled

funds.

18
19

Joe Selman was a Chartered Life Underwriter

and a Chartered Financial Consultant, who

engaged in the business of designing,

administering, managing and consulting for

group medical insurance plans for his clients.

He was licensed by the Commonwealth of

Virginia, Bureau of Insurance, to act as a

consultant with regard to life insurance,

annuity contracts, accident and sickness

insurance. Five plans were involved covering

2,400 participants. Virginia Selman pled guilty

in July 1999 on the multiple count indictment.

This case was investigated by PWBA, the U.S.

Postal Inspection Service, and the Virginia

State Police.

United States v. Weinlein

10-9-98

Albany, N.Y.

Laurie Weinlein, the owner of American

Payroll Network, Inc. (APN), an employee

leasing business, was convicted by a federal

jury for embezzling health plan funds,

affecting 517 employees, and bank fraud

involving $1 million. She had been charged

with the violations on May 26, 1998, in a twocount indictment.

An employee leasing company such as APN

acquires the payrolls of small companies,

paying the employees of the small companies

as leasing company employees and then

leasing the employees back to the small

employers. In return for handling the payroll

taxes, insurance and workers compensation,

the employee leasing company typically

charges and receives a fee based on the

amount of the small employers’ payroll.

Sentencing is pending. The APN case was

investigated by PWBA and the FBI.

United States v. Moore

10-10-98

Hartford, Conn.

Gary Moore was sentenced to 51 months

imprisonment and ordered to restore $1

million for stealing from an employee benefit

plan that covered 85 workers. He pleaded

guilty in June 1998 to embezzling $1.5 million

from the Emergi-Lite, Inc. Saving and Security

Plan, and to making false statements in

documents required to be filed under the

Employee Retirement Income Security Act.

Moore was president of Moore Benefit

Systems, Inc., a Connecticut corporation that

provided recordkeeping services for employee

pension benefit plans. Between October 1986

and November 1997, Moore Benefit Systems

served as recordkeeper and trustee for the

Emergi-Lite pension plan. Emergi-Lite

manufactured emergency lighting fixtures and

exit signs.

The case was investigated by PWBA, the FBI,

and the Department of Labor’s Office of the

Inspector General. In a parallel civil case,

PWBA recovered $2,031,000 for the plan.

United States v. Pappas

11-9-98

Long Island, N.Y.

Dennis Pappas, an attorney who has been

described as the financial advisor for the

Columbo organized crime family, was

sentenced to 46 months imprisonment and

ordered to make restitution of $1.5 million.

The sentence resulted from a guilty plea in

June 1998 for violating the Racketeer

Influenced and Corrupt Organization Act
(RICO) by engaging in extortion and pension

fund embezzlement. He was fined $250,000.

The fine will be paid at a rate of 15 percent of

adjusted gross income.

In addition to his law practice, he established

companies that dealt with insurance brokerage,

real estate investments and the administration

of pension funds for companies and

physicians. According to court documents,

Pappas looted about $1 million from four

private pension funds and diverted the money

for the Colombo crime family’s loan sharking

operations. More than 50 participants were in

plans affected by the scheme. This case was

investigated by PWBA, the FBI, the Criminal

Investigation Division of the Internal Revenue

Service and the U.S. Postal Inspection Service.

Indiana v. Brownstein

12-2-98

Topeka, Ind.

Arnold Brownstein, owner of the Carib-Tech

company, was charged with stealing from a

company-sponsored 401(k) plan. The plan

covered 30 employees and Brownstein served

as its plan trustee. The complaint alleges that

money withheld from employee paychecks for

contributions to the 401(k) plan were never

forwarded to the investment account with the

Aetna Life Insurance and Annuity Company,

nor was the employer’s portion of the

contribution made.

The company filed for bankruptcy in 1996.

The amount involved in the alleged theft totals

$10,000. Brownstein now resides in

Springdale, Utah, and has not yet made a court

appearance in Indiana. This case was

investigated by PWBA and the Indiana State

Police.

United States v. McKendree

12-2-98

Santa Rosa, Calif.

Michael McKendree, a San Mateo mortgage

broker employed by the American Mortgage

Company (AMC) in Santa Rosa, Calif., was

the subject of an 11-count indictment returned

in December 1998 charging him with

embezzling $430,000 from the Richmond

Wholesale Meat Company Profit Sharing Plan.

There were 89 participants in the plan. AMC

was a sole proprietorship owned and operated

by Mrs. Glenn McKendree, who employed her

son, Michael, to solicit lenders and borrowers

for loans secured directly or collaterally by

liens on real property.

The indictment alleges that the embezzled

money consisted of loans made to various real

estate owners by the plan. Part of the money

was diverted for his own use and the rest was

channeled into a variety of other financial

activities. He allegedly covered up the

embezzlement by filing papers that made it

look as if the funds had been properly

invested. The criminal case was investigated

by PWBA, the FBI and the Criminal

Investigation Division of the Internal Revenue

Service.

United States v. Hagmaier

12-7-98

San Luis Obispo, Calif.

Carlton Hagmaier, a general agent of The

Guardian Life Insurance Company of America

in San Luis Obispo, Calif., pleaded guilty to

charges of mail fraud, pension plan

embezzlement, making a false statement to a

federally insured financial institution, and

filing a false tax return. Hagmaier was

20
sentenced in April 1999 to 57 months in

federal prison.

In December 1989, Hagmaier became a career

development manager for Guardian and in

January 1993 he became a Guardian general

agent, using the name Pacific Financial Group.

In this capacity, he was authorized to supervise

other agents and brokers selling life, health,

and disability insurance policies, as well as

other Guardian financial products. He

schemed though a series of false statements

representing funds invested by client.

As a result of the fraudulent action, clients

were led to believe they owned policies that

never existed, or were significantly reduced in

value, or which ceased to exist. One of the

clients affected was the PIC Manufacturing

Company that sponsored a defined benefit

plan. In his plea agreement, Hagmaier

acknowledged that he misappropriated

approximately $2 million and used the funds

for his own personal and business expenses.

This involved about $500,000 that he said he

embezzled from the pension plan, which

covered 67 participants.

This case was investigated by PWBA, the FBI,

the Criminal Division of Investigation of the

Internal Revenue Service and the California

Division of Insurance.

United States v. Frazier & Uwakwe

12-7-98

Marietta, Ga.

Norcross, Ga.

Cheryl Frazier, of Marietta, Ga., pleaded guilty

in December 1998 to engaging in a conspiracy

to defraud her company’s pension plans of

more than $326,000. Frazier and codefendant, Chinaka Uwakwe of Norcross, who

pleaded guilty in October 1998, conspired to

use false names and Social Security numbers,

causing false computer input and false

statements, in order to systematically steal and

convert monies belonging to retirement funds

sponsored by the United Parcel Service (UPS).

They were the subjects of a 22-count

indictment filed in October 1998 that charged

them with conspiracy, embezzlement and

money laundering.

Frazier was employed as an administrative

specialist in the corporate benefits accounting

group of UPS. The plans covered 78,533

employees. She authorized the issuance and

paid to third parties more than $326,000 in

employee benefit checks. Most of the checks

were deposited into accounts controlled by

Uwakwe, who would write checks to Frazier

for 50 percent of the ill-gained amounts and

keep the rest for himself.

Frazier was sentenced in August 1999 to 2

years, 10 months in federal prison, ordered to

pay restitution of $371,183 and was ordered to

serve 3 years supervised release. This case was

investigated by PWBA and the United States

Secret Service.

Uwakwe was sentenced in April 1999 to one

year, 18 months in federal prison, and ordered

to pay more than $327,000 in restitution.

United States v. Mangiardi

12-10-98

Williamsport, Pa.

Paul Mangiardi, a South Williamsport, Pa.,

businessman, who was convicted by a federal

jury in June 1998 on conspiracy and mail

fraud relating to a health insurance fraud, was

21
sentenced to 151 months’ imprisonment,

followed by 3 years supervised release, and

fined $1,600. No restitution was ordered since

he had no assets.

The government charged that in 1995

Mangiardi and others engaged in a scheme to

defraud employers and employees out of

health benefits. They failed to obtain

appropriate reinsurance for the plans,

commingled premiums contributed to the

plans, falsely represented that the plans were

fully funded and self-insured, provided full

health benefit coverage, and were reinsured for

excess claims through Lloyds of London and

other reinsurers. They were accused of

collecting $4.4 million in premiums from

employers. There were unpaid claims of

$1.1 million.

Companies operated by Mangiardi

administered health plans to approximately

5,000 employees in Pennsylvania, Delaware,

New York, New Jersey, West Virginia, North

Carolina and Ohio.

This case was investigated by PWBA, the U.S.

Postal Inspection Service and the

Department’s Inspector General’s Office, with

assistance from the Pennsylvania and

Delaware Departments of Insurance.

Civil and Criminal Cases/Recoveries

22
The agency wrote and issued For Employees

. . . A Look at 401(k) Plan Fees, which has

become one of the most requested

publications. The booklet is an educational

resource to help consumers understand the

fees and expenses associated with 401(k) plan

accounts.

In addition, the agency issued The Y2K

Computer Problem: Questions and Answers

Related to Employee Benefits Plans, a revision

of PWBA’s Customer Service Standards, and a

revision of a popular Pension and Welfare

Brief, Can the Retiree Health Benefits

Provided by Your Employer Be Cut? A new

brief was produced, The Department of Labor

Outlines the Process for State-Registered

Investment Advisers. The Division of Public

Affairs also coordinated the production and

publication of several other issuances

(mentioned in other sections of this report).

The agency continued to distribute its

publications through the toll-free Publication

Hotline, 1-800-998-7542, and copies of most

publications are available on the PWBA

website. To facilitate ordering, the agency

designed and distributed a promotional card

encouraging consumers to use the 1-800

number for brochure requests.

Health Benefits Education Campaign

In December the agency launched the National

Health Benefits Education Campaign. Its goal

is to arm Americans with information that

makes them informed consumers when they

are faced with life and work events affecting

their health care decisions.

The campaign is directed to the 120 million

Americans who receive job-sponsored health

benefits and alerts them to their rights and to

Participant Assistance/Public Education

situations either at home or at work that may

require changes in health care benefits.

Three new brochures were unveiled during the

campaign: Top Ten Ways to Make Your Health

Benefits Work for You, which offers tips that

consumers should follow to ensure they have

adequate health care coverage; Life Changes

Require Health Choices . . . Know Your

Benefit Options, which outlines the basics of

health care law and events that can trigger a

need to reevaluate coverage; and Work

Changes Require Health Choices . . . Protect

Your Rights, which contains information about

health benefits and laws workers should be

aware of throughout their careers.

Public service announcements (PSAs), a

column and radio spots on the Health

Insurance Portability and Accountability Act

were also released during the campaign. The

column and PSAs were distributed to

approximately 1,100,000 readers. Radio PSAs

were distributed to 503 radio station

nationwide, reaching 48,433,900 listeners.

Retirement Savings Education

Campaign

The agency’s Retirement Savings Education

campaign continued to maintain high visibility

in 1998 targeting additional populations to

increase public awareness of the importance of

saving and planning for retirement. Since its

inception, the multi-faceted campaign has

sparked a national movement to create and

disseminate more information to help

individuals plan for a secure retirement.

More than 250 partners representing federal

agencies, savings groups, trade and

professional associations, labor unions,

community groups and private-sector

23
organizations form the partnership’s unique

collaborative effort. The groups have targeted

special efforts to minorities, women, youth and

small businesses — populations that historically

have low savings and pension participation rates.

In June PWBA was instrumental in convening

the first National Summit on Retirement

Savings, which was cohosted by the White

House and Congress.

The Savings Are Vital to Everyone’s Retirement

Act of 1997, known as the SAVER Act, directed

PWBA under the auspices of the Department of

Labor to continue its series of outreach programs

on retirement savings and to begin a national

dialogue on savings issues.

The two-day summit was launched by Labor

Secretary Alexis Herman and attended by 250

Summit delegates who examined the state of

retirement savings in this country and discussed

problems Americans are having with savings

and explored ways to educate them about the

need to save for a secure retirement. Delegates

represented a wide cross-section of groups

including Fortune 500 companies, labor unions,

government, the pension industry and academia.

They identified some of the barriers workers

meet when trying to save and how to eliminate

them. They also addressed issues such as how to

spread the saving message to children to teach

them the importance of saving throughout their

lives.

Several new materials and publications were

developed and unveiled at the National Summit

and distributed as part of the 1998 Retirement

Savings Education Campaign. Four specific

retirement savings publications included: the

Spanish translation of the Women and Pensions

and Top Ten Ways brochures; the booklet For

Employees...A Look at 401(k) Plan Fees,

which was announced for the first time by

then-Assistant Secretary Olena Berg at the

Summit; and the Retirement Savings

Education Campaign brochure, which

described the campaign and the various target

groups and initiatives undertaken by the

agency.

In addition, during the week of the Summit, a

special supplement in the Washington Post

highlighted the Summit and various retirement

savings issues. The blueprint for the

supplement was developed with PWBA’s

assistance.

The Final Report on the National Summit on

Retirement Savings was released on Sept. 3 by

Labor Secretary Alexis Herman.

The agency’s new or revised publications were

a vital part of the Retirement Savings

Education Campaign. Prior to the SAVER

Summit, the agency printed the booklet About

Retirement Savings, which looked at facts

about savings in the United States, and a

brochure about the campaign’s

accomplishments, At a Glance ... Retirement

Savings Campaign. After the Summit, the

agency released the final report of the National

Summit on Retirement Savings. In addition, it

revised the campaign’s signature brochure, Top

10 Ways to Beat the Clock and Prepare for

Retirement. Women and Pensions, another

campaign piece, also was revised during the

year.

The agency successfully engaged the

Consumer Information Clearinghouse to

promote the pamphlet Women and Pensions in

Parade magazine, the Sunday supplement to

many newspapers.

24
In October 1998, the campaign also took

its message to more than 100 Hispanic

radio stations throughout the country

during Hispanic Heritage Month. Public

service announcements and talk shows on

basic concepts for planning for a secure

retirement were translated into Spanish

broadcasts during the entire month.

Thousands of listeners responded by

requesting the two publications that the

agency had translated into Spanish.

The campaign also aggressively targeted in

1998 African-Americans aged 25 to 65

with a print public service announcement

that was distributed to 140 AfricanAmerican newspapers.

Women continued to be a major focal

point of the campaign. The agency

conducted a major mass mailing in

January of retirement savings literature

that targeted 9,000 women business

owners when it launched a joint campaign

with the National Association of Women

Business Owners. This special campaign

educated this important group about

retirement savings and simplified pension

plan options for small business.

In addition, in September the agency

cosponsored along with the State

Treasurers’ Office and other organizations,

the Every Woman’s Money Conference in

Oregon. This was the first of a series of

conferences that is being held in states

throughout the country. The conferences

are designed to educate, motivate, inspire

and equip women to take control of their

financial futures.

Dislocated Worker Outreach Initiative

The Dislocated Workers Program began as an

outreach service offered by the Cincinnati

Regional Office in response to a perceived

need for timely, specific information on the

part of workers who become unemployed.

The purpose of the Dislocated Workers

Program is to inform employee benefit plan

participants who are at risk, namely, dislocated

workers who face job loss and associated

benefit losses, in understanding not only their

rights under ERISA, but also how their

employment status may affect their pension

and health benefits as well as related matters.

Many dislocated workers are unaware of their

rights and/or responsibilities of their pension

and health plans under ERISA. Although

various local federal, state, civic and social

organizations provide employment, training,

and monetary aid, the dislocated workers

needed additional information on pension

plans, COBRA, and HIPAA. The Dislocated

Workers Program was initiated in response to

that need.

Since 1998, the program was expanded to all

10 PWBA Regional Offices. The Dislocated

Workers Program is playing a major role in

educating the public about ERISA and

PWBA’s role in enforcing wokers’ benefit

rights. As local centers for information on

employee benefit plans, regional offices are

taking a pro-active role in acquainting the

public with the program.

25
Participant Assistance

The success of the agency’s education and

outreach activities have increased the volume

of consumer inquiries. In CY 1998, the

agency’s benefit advisors handled over

150,000 inquiries — an overall increase of 57

percent since 1995. And, the benefit advisors

continued to provide the highest quality

service to consumers recovering more than

$46.7 million on behalf of individual

participants — more than four times the

dollars recovered in 1995.

Much of the growth in volume of participant

inquiries has been in the health area. Prior to

1995 the agency handled more inquiries about

pensions than health. In 1998, the agency

received 13 percent more health inquiries than

pension inquiries.

Summary of Inquiries

CY 1998

150,772

Telephone

Written

Visitor

E-mail

130,522

19,328

782

140

Benefit Recoveries

$46.7 million

26
In 1998, PWBA received 162 individual

exemption applications, granted 76, denied or

withdrew 68, and had 179 pending by year’s

end. The agency also granted a class

exemption that would permit certain foreign

exchange transactions between banks or

broker-dealers and plans, pursuant to standing

instructions.

In addition, in the past year the agency

received 58 applications in accordance with a

class exemption granted in 1996 (EXPRO)

which permits certain authorized transactions

between plans and parties-in-interest. This

exemption permits certain prospective routine

transactions that are specifically authorized by

the agency, and are substantially similar to two

individual exemptions previously granted by

the agency. During this period, the agency

granted 31 submissions, rejected 8, and 12

withdrew. The EXPRO class exemption

significantly expedites the processing of

routine transactions that generally can be

entered into 78 days after the Department

acknowledges receipt of the submission.

The agency also processed 59 good-faith

waivers from the 20 percent civil penalty

imposed under section 502(l) of ERISA.

A significant individual exemption was

granted to U S West, Inc. (U S West). This

exemption permits voluntary in-kind

contributions by U S West and its affiliates of

certain shares of U S West stock to welfare

benefit plans maintained by U S West

in order to pre-fund the plans against future

post-retirement expenses incurred by the

plans’ members.

The agency also granted an individual

exemption to Barclays Bank PLC. This

Exemptions

exemption permits the purchase or sale of

securities between Barclays or an affiliate of

Barclays that is a bank or broker-dealer subject

to British law (the Foreign Affiliate) and plans

with respect to which Barclays or the Foreign

Affiliate is a service provider; and the

extension of credit to a plan by Barclays or the

Foreign Affiliate to allow the settlement of

securities transactions, or in connection with

the writing of options contracts or the purchase

or sale of securities; and the lending of

securities that are assets of a plan to Barclays

or the Foreign Affiliate.

In addition, the agency granted an individual

exemption to MS Commodity Investments

Portfolio II, L. P. (the Partnership) and Morgan

Stanley Commodities Management, Inc.

(MSCM). This exemption permits certain

plans to acquire or redeem units in the

Partnership where MSCM, the general partner

in the Partnership, and/or its affiliates, are

service providers to the plans.

Throughout the year, a number of employers

sponsoring plans that invested in guaranteed

investment contracts (GICs) requested

permission to engage in various transactions

with these plans under circumstances where

the insurer was insolvent. As a result, the

agency granted two exemptions, and gave final

authorization to one EXPRO submission, for

employers to purchase GICs from plans to

prevent losses or delays in benefits.

In addition, the agency granted five

exemptions, and gave final authorization to

two EXPRO submissions, for a plan to lend

securities to a plan service provider if certain

conditions were met. The agency also granted

five exemptions, and gave final authorization

to two EXPRO submissions, for a plan to

27
acquire and hold asset-backed securities that

were issued by the plan’s service provider.

Exemptions for GICs

98-04 January 26

Pentair Retirement Sale by Plan to

Savings Sponsor

and Stock Incentive

Plan

98-06 January 26

CoreStates GIC and Sale by Fund to

BIC Fund Sponsor of Plans

Invested in Fund

EXPRO grants for GICS

98-01E January 26

Hi-Plains Hospital Sale by Plan to

Employee Sponsor

Thrift Plan

Exemptions for securities lending

98-23 May 29

Bankers Trust Co.

98-24 May 29

Goldman Sachs & Co.

98-32 July 8

Union Bank of

Switzerland

98-40 August 31

Morgan Stanley & Co.,

Inc.

98-41 August 31

Lehman Brothers, Inc.

28

EXPRO grants for securities lending

98-07E April 17

Merrill Lynch Porfolio

Services, Inc.

Exemptions for asset-backed

securities

98-08 February 19

PNC Capital Markets,

Inc.

98-11 March 16

National Rural Utilities

Financial Corporation

98-13 April 7

MBNA America Bank,

National Association

98-14 April 7

Citibank (South

Dakota), N.A, Citibank

(Nevada), N.A., and

Affiliates

98-56 November 25

Toyota Motor Credit

Corporation and

Certain Affiliates

EXPRO grants for asset-backed

securities

98-08E April 27

ABN AMRO, Inc.

98-24E October 28

Capital One Bank
29

Other significant exemptions

98-02 January 13

First Bank System, Personal Retirement

Account (the Plan). Permits U.S. Bancorp,

formerly First Bank System, Inc., to contribute

to the Plan of U.S. Bancorp’s interest in two

limited partnership funds and also permits

U.S. Bancorp to grant an option to the Plan.

With respect to the option, the Plan has the

discretion to require U.S. Bancorp to

repurchase its interests provided that certain

conditions are met.

98-17 April 22

Metropolitan Life Insurance Company

(MetLife). Permits an employee benefit plan

to purchase or retain a synthetic guaranteed

investment contract (GIC) entered into

between the plan and MetLife.

98-23 May 29

Bankers Trust Company (Bankers Trust).

Permits plans to loan certain securities to

affiliates of Bankers Trust when Bankers Trust

and certain of its affiliates act as a directed

trustee or custodian and securities lending

agent or subagent. It also permits Bankers

Trust and certain of its affiliates to receive

compensation in connection with the above

transactions.

98-35 June 9

Amalgamated Bank of New York (the Bank).

Permits the provision of certain banking

services by the Bank to plans having an

ownership interest in the bank; the purchase

by the plans of certificates of deposit issued by

the Bank; and the deposit of the plans’ assets

in money market or other deposit accounts

established by the Bank.

98-38 August 6

Individual Retirement Accounts for William

Albright, et al (the IRAs). One in a series of

similar cases. Permits the sale of stock in First

Community Bancshares Corp. (First

Community) by the IRAs to the IRAs’

participants, each participant a president or

director of First Community or its subsidiary,

due to First Community’s election to be taxed

as a Subchapter S corporation, with respect to

which IRAs are prohibited from owning stock.

98-53 November 9

Pacific Income Advisers (PIA). Permits the

acquisition of units in certain trusts (the

Trusts) by plans and IRAs; and the payment of

fees by the Trusts to PIA where PIA is both a

fiduciary or other party-in-interest with respect

to a plan investing in a Trust and the

investment adviser to each Trust.

98-61 December 24

John Hancock Mutual Life Insurance

Company (JHMLIC). Permits the purchase

and sale of certain timber assets between

various separate accounts that are maintained

or managed by JHMLIC or an affiliate, or with

respect to which JHMLIC or an affiliate is an

investment adviser and have plan assets.

Significant EXPROs

98-09E

Lehman Brothers, Inc. (Lehman Brothers) and

Lehman Brothers International (LBEI).

Permits principal transactions and extensions

of credit between LBEI and plans with respect

to which LBEI is a service provider.

98-22E

Commerzbank AG, London Branch, and

Commerzbank AG Affiliates. Permits the
30

purchase and sale of securities, and extensions

of credit in connection with the settlement of

securities transactions or in connection with

the writing of option contracts, to a plan by a

foreign broker-dealer which is, or is an affiliate

of, a service provider to the plan.

Significant proposals

Salomon Smith Barney Inc. (SSB). This

exemption would permit, as of June 7, 1996,

any purchase or sale of securities between

certain affiliates of SSB that are foreign

broker-dealers or banks (the Foreign Affiliates)

and employee benefit plans (the Plans) with

respect to which the Foreign Affiliates are

service providers to the Plans. The exemption

also permits extensions of credit to the Plans

by the Foreign Affiliates to permit the

settlement of securities transactions; and

securities loaned to the Foreign Affiliates by

the Plans.

Bankers Trust Company (BTC). This

exemption would permit plans to which

Bankers Trust Company (BTC) or its affiliates

provide fiduciary or other services and plans

established or maintained by BTC or its

affiliates to sell fractional amounts of certain

fixed-income instruments (Financial Amounts)

to the plans in connection with the

redenomination of the securities into euros.

As an alternative to the sale of the Fractional

Amounts, this exemption would permit the

receipt by the plans from BTC of cash equal to

the amount that BTC or is affiliates receive

from the issuer of the fixed-income instrument

in lieu of the Fractional Amount, exclusive of

transaction costs, plus accrued interest.

Merrill Lynch, Inc. (Merrill Lynch). This

exemption would permit the sale of debt

instruments issued by Merrill Lynch to plans in

which Merrill Lynch or an affiliate is a service

provider.
During 1998 PWBA published:

Proposed amendments to the

regulations governing the contents of

Summary Plan Descriptions. The

proposal would implement

recommendations of the President’s

Commission on Consumer Protection

and Quality in the Health Care

Industry and is intended to ensure that

all participants in group health plans

are provided with understandable and

useful information concerning their

plans.

An interim final rule, with a request

for comments, amending the Summary

Plan Description and related

regulations under Title I of ERISA to

implement statutory changes to ERISA

effected by the Health Insurance

Portability and Accountability Act of

1996.

Proposed amendments to the

regulation governing the establishment

and maintenance of benefit claims

procedures by employee benefit plans

covered by Title I of ERISA. The

proposal is intended to ensure more

timely benefit determinations,

enhanced access to information on

which a benefit determination is

based, and give greater assurance that

Regulatory Activities

participants and beneficiaries will be

afforded a full and fair review of

denied claims.

Proposed amendments to regulations

relating to the annual reporting and

disclosure requirements under Part 1

of Title I of ERISA. The amendments

would make the technical and

conforming regulatory changes

necessary to streamline and simplify

the Form 5500 Series annual return/

report for employee benefit plans and

the methods by which such

information is filed and processed.

An announcement of the Department’s

decision not to adopt an annual

reporting enforcement policy for

multiemployer benefit plans that had

been proposed in 1997. Under the

proposed policy, annual reports filed

by multi-employer welfare benefit

plans would not have been rejected

solely because the accountant’s

opinion accompanying them was

“qualified” or “adverse”due to a

failure to comply with the financial

statement disclosure requirements of

the American Institute of Certified

Public Accountants’ (AICPA)

Statement of Position 92-6.

31










PWBA’s research activities in 1998 covered a

broad spectrum of retirement and health

benefit issues. These included tracking

patterns and trends that pertained to plan

sponsors and plan coverage, the design and

adequacy of benefit plans, the costs of

maintaining a plan and the behavior and

attitudes associated with retirement decisions.

A PWBA-designed survey of households’

employment-based pension benefits was also

fielded by the U.S. Census Bureau. The data

from this survey will be available for the

agency’s analysis in 2000.

The agency published its Private Pension Plan

Bulletin, which covers Form 5500 Annual

Reports for the 1994 plan year. The bulletin

reports that the number of 401(k)-type plans

increased by 13 percent to 175,000 from

154,500 plans while the number of active

participants in these plans increased by 9

percent to 25.2 million. The increase in

401(k)-type plans resulted not only from new

plans being established, but also from existing

defined contribution plans being amended to

include a cash or deferred arrangement.

PWBA also published in 1998 Health Benefits

and the Workforce, Volume 2, a compendium

of 16 studies prepared under contract during

the previous 2-year period by the RAND

Corporation and The Urban Institute. Study

topics include an examination of the demand

for, and supply of, health insurance coverage,

the effect of alternative tax policies on health

benefit plans, health insurance mandates,

health portability reforms, and the connection

between health benefits and retirement

behavior.

Policy and Research

32

The agency initiated or completed under

existing, multiyear contracts a number of major

health and pension benefit studies. Topics

addressed include group purchasing of health

insurance by small employers, 401(k) plan fees

and expenses, pre-retirement cash-outs of

retirement benefits and womens’ retirement

behavior. The agency also awarded eight new,

single-project research contracts under its small

research contracts program.

In the policy area, the agency continued to:

develop legislative proposals that would

simplify pension rules and improve portability;

expand retirement savings opportunities and

enhance pension security by encouraging

contributions to IRAs through payroll

deduction; provide a tax credit for small

businesses that establish pension plans; create a

new, simplified defined benefit plan for small

businesses; require faster vesting of 401(k)

employer matching contributions; and

strengthen participant protections and penalties

for violations of the law and auditing of ERISA

plans.

PWBA health policy initiatives included

advancing the Patients’ Bill of Rights, and the

enactment of the Women’s Health and Cancer

Rights Act of 1998.

The agency also provided assistance to

Congress and the Administration with respect

to logistical and policy issues in convening a

National Summit on Retirement Savings.
Key Testimony

February

Former Assistant Secretary Olena Berg

appeared before the House Committee

on Government Reform and Oversight,

Human Resources Subcommittee, to

testify on enforcement issues and H.R.

2290, legislation entitled “Security and

Enforcement Compliance for Retirement

under ERISA.”

June

Former Assistant Secretary Berg

testified before the House Committee

on Education and the Workforce,

Employer-Employee Relations

Subcommittee, and the Senate Special

Committee on Aging in a joint hearing

on “Preparing Americans for Retirement:

The Roadblocks to Increased Savings.”

Deputy Assistant Secretary for Program

Operations Alan Lebowitz testified

before the House Subcommittee on

Oversight and Investigations,

Committee on Education and the

Workforce, in a hearing relating to

security of multiemployer plan assets.

September

Deputy Assistant Secretary for Program

Operations Lebowitz appeared before

the Senate Special Committee on the

Year 2000 Technology Problem to

explore the preparedness of the

pension and mutual fund industries for

the Year 2000 date change.

33
PWBA continued to operate a versatile

program in 1998 to improve timely compliance

with ERISA’s reporting and disclosure

requirements. Components of the program

included instituting traditional enforcement

initiatives to assess civil penalties;

encouraging pro active voluntary compliance;

coordinating agency efforts with the

accounting profession; engaging in

educational outreach; and assessing the quality

of employee benefit plan audits.

Reporting Compliance Program

Deficient, late- and non-filers constitute the

three groups in the agency’s Reporting

Compliance Program. Plan administrators are

penalized for failure to submit complete and

accurate Form 5500 Series Annual Reports

with the Department. In 1998, approximately

$15 million in civil penalties were assessed

under the program against plan administrators

for filing unsatisfactory Form 5500 Series

Annual Reports. More than $8 million was

assessed for late- and non-filings.

Plan administrators are either encouraged to

file previously unfiled Form 5500 Series

Annual Reports or to resolve late filer

penalties through the agency’s Delinquent

Filer Voluntary Compliance (DFVC) Program.

In addition, administrators of special plans,

such as “top hat,” apprenticeship and training

plans, who missed their filing deadlines may

submit statements and choose an alternative

method of compliance in place of the annual

report filing.

By levying smaller fines, DFVC simplifies the

filing process and reduces the financial

hardship of voluntary compliance for small

business. Approximately 2,800 plans chose to

take advantage of the DFVC program in 1998,

and the program collected more than $8

million in civil penalties.

Accounting and Auditing

Coordination with the Accounting

Profession

The agency continued to work with the

American Institute of Certified Public

Accountants (AICPA) to revise the AICPA’s

guide for auditing employee benefit plans.

New audit and accounting requirements issued

by the Financial Accounting Standards Board

were included in the revised guide, which was

published in May 1998. The guide offers

assistance on how to comply with ERISA’s

audit, reporting and disclosure provisions.

Statement of Position (SOP) 92-6

Decision

PWBA announced in a public notice on Nov.

25, 1998, that it would not adopt for annual

reports a proposed nonenforcement policy that

was filed by multiemployer welfare benefit

plans.

The Statement of Position, also known as SOP

92-6, amends generally accepted accounting

principles to require that a plan’s audit report

include the projected future costs of providing

retiree health benefits for current retirees and

post-retirement health benefits for active

employees.

The agency also exempted multiemployer

plans that submitted annual reports in 1998

from complying with SOP 92-6, and extended

the exemption through the plan year covering

1999 filings. The agency will not enforce

compliance with the SOP’s requirements until

the plan year covering year 2000 filings.

Educational Outreach

PWBA continued its Educational Outreach

Program under the sponsorship of the

International Foundation of Employee Benefit

Plans. In 1998, the agency conducted a total

of 16 workshops in Atlanta, Boston, Chicago

and Los Angeles, which presented the Form

5500 requirements and an overview of the

34
agency’s enforcement program. In 1999, an

additional four workshops are planned.

Referral of Substandard Audit Work

PWBA has referred 301 cases of potential

deficient accounting and auditing work to the

American Institute of Certified Public

Accountants’ Professional Ethics Division. Of

these cases, 88 were either referred to the

AICPA’s trial board, or the accountant reached

a voluntary settlement agreement; 147 cases

resulted in remedial corrective action letters;

15 resulted in no violation; and 24 were closed

for other reasons.

In addition, 77 cases have been referred to

state boards of accountancy in instances where

the AICPA lacked enforcement jurisdiction

over the accountant or the accountant was not

properly licensed.

Performance of On-site Workpaper

Reviews

The agency continued its quality control

program for improving the audit work

performed by independent qualified public

accountants, performing 62

on-site reviews and analyses of audit

workpapers during 1998.

Thrift Savings Plan Audits

PWBA conducted audits on fiduciaries who

monitor the Thrift Savings Plan (TSP), as

Plan Audit Reviews - 1998

Number of reporting

 compliance cases 2,592

Reviews of auditor’s work

 papers 62

Plan Audit Reviews

Cumulative through 12/31/98

Total audits referred 378

State licensing boards 77

AICPA 301

Resolutions - AICPA 274

Referred to AICPA trial board

 or settlement 88

Letters for corrective action 147

No deficiencies 15

Closed for other reasons 24

35

required by the Federal Employees’

Retirement System Act. Audit procedures

are designed to strengthen the security of

more than $74 billion held in 2.3 million

TSP accounts of federal workers. Audits of

the thrift plan can also increase the

opportunities for greater net earnings by

participants, due to the agency

recommendations for improvements in the

TSP system.
Health Care Task Force

Following is a summary of the most significant

regulatory issues developed by the Health Care

Task Force during 1998:

PWBA issued an interim final rule

providing guidance under the

Newborns’ and Mothers’ Health

Protection Act of 1996 (the

Newborns’ Act). This interim rule

provides guidance on the Newborns’

Act’s provisions, including provisions

concerning protections for mothers

and their newborn children with

regard to hospital stays following

childbirth. The Newborns’ Act

provisions are included in Part 7 of

Subtitle B of Title I of ERISA, and

parallel statutory provisions are set

forth in the Public Health Service Act

and the Internal Revenue Code.

The agency updated its 1997 reference

booklet, “Questions and Answers:

Recent Changes in Health Care Law,”

which will be published in 1999. The

updates contain additional questions

and answers that address issues

pertaining to the interim final

regulations issued under the Mental

Health Parity Act of 1996 and the

Newborns’ and Mothers’ Health

Protection Act of 1996. The updates

also contain questions and answers

that address issues under the Women’s

Health and Cancer Rights Act of

1998. To date, more than 300,000

copies of this reference booklet have

been distributed to the public.

 PWBA also established a contact

person network between individuals in

its field offices and in the various

State Insurance Commissioners’

Offices who are the “point-people”

responsible for coordinating responses

on the provisions of the Health

Insurance Portability and

Accountability Act of 1996, the

Mental Health Parity Act of 1996, the

Newborns’ and Mothers’ Health

Protection Act of 1996, and the

Women’s Health and Cancer Rights

Act of 1998, as well as other health

care laws affecting group health plans.

36






hardship, allow the lump sum

distribution to be paid directly to the

recipient. To the extent such

distributions consist of assets other

than cash, a qualified plan or IRA

would not be required to accept such

assets.

Require all defined contribution plans

to be amended to accept rollovers

from other plans, provided that the

rollovers are made in the form of cash.

Permit rollovers of post-tax

contributions to qualified plans and

IRAs in the form of cash.

Conduct further study of the rules

permitting in-service withdrawals of

employee after-tax contributions and

vested company contributions for

appropriate limitations.

Modify the mandatory cash-out

provisions so that any benefits or

balances valued in excess of $2,000

must be rolled over to an IRA or other

qualified plan or used to purchase an

annuity.

Eliminate Pension Benefit Guaranty

Corp. premiums (but not PBGC

coverage) for defined benefit plans

that retain the benefits of separated

participants whose vested pension

benefit has a value of less than $5,000.

Require that all plans that permit

participant loans be required to accept

ERISA Advisory Council

In 1998, the Advisory Council on Employee

Welfare and Pension Benefit Plans focused on

the following issues: addressing the problem

of preserving retirement funds, obtaining

disclosure on the quality of health care, and

enhancing and establishing pension plans for

small businesses. The following listing

includes a synopsis of the final

recommendations presented by the Advisory

Council’s three working groups.

The views of the working groups do not

necessarily reflect those of the Department.

Retirement Plan Leakage*

Ask that the Census Bureau and other

governmental entities conduct

fundamental research to provide

analyses and data on all aspects of

plan leakage.

Require the Labor Department to

utilize the Current Population Survey

to identify the magnitude and trends of

all aspects of plan leakage.

Require that all defined contribution

plans offer annuities as the primary

form of benefit for all distributions in

excess of $5,000, and comply with the

joint survivor rules, including spousal

consent.

Require that lump sum distributions in

excess of $2,000 be rolled over

directly to an IRA or other qualified

plan; in the case of a financial







37















*Leakage is that money in tax-deferred retirement saving vehicles which leaves the system before the participant actually retires.

Reasons include participant loans, hardship withdrawals and lump sum distributions not forwarded to other employer-sponsored

pension plans or individual retirement accounts.
outstanding loans as part of a rollover

by new participants.

Require that plans permit former

participants who chose to leave their

account balance in their former

employer’s plan to continue to repay

the installments of their outstanding

loan balances after termination of

employment. (This rule would not

apply if the total account balance is

less than $5,000.)

Require the IRS to monitor Form 5500

filings and Form 1099-R filings to

identify the magnitude and trends of

qualified plan distributions attributable

to defaulted loans.

Eliminate the Suspension of

Participation rule for hardship

withdrawals.

Allow portability of balances under all

types of defined contribution plans so

that balances under plans offered by

for-profit organizations, by nonprofit

organizations, and by state and local

government entities can be combined

in any one defined contribution plan.

Expand the use of IRAs as rollover

vehicles.

Require participant education on the

harmful effects of leakage.

Specifically, require plan sponsors to

provide plan participants with an

explanation of the impact on a

participant’s retirement security of

spending the distribution currently

versus rolling the distribution into a

tax-qualified savings vehicle.

38

Require the Department of Labor to

issue a pamphlet on leakage illustrating

the adverse effect of leakage on

retirement savings and retirement

lifestyle, and a report of the societal

and individual advantages of defined

benefit plans, particularly with respect

to leakage, to plan sponsors, plan

participants and Congress.

Health Care Quality Disclosure

Provide consumers with effective

outlets for obtaining quality

information on all health care

providers, including individual

practitioners.

Provide employees, benefit plan

participants and consumers with

adequate, reliable and usable

information on commercial health

coverage programs and plans.

Require a legislated time frame for

phasing in health care quality

disclosure. This time frame should

include:

Disclosure and dissemination of

relevant information that is readily

available to the provider, including

any formal discipline approved

against the provider by licensing

authorities in any state.

Collection, disclosure, and

dissemination of consumer

satisfaction data, including the

consumer satisfaction survey

results.





















—

—
Collection, disclosure, and

dissemination of clinical quality

data, based on evolving standards

as indicated by medical research.

Create a new federal entity or quality

board to spearhead and help finance

the development of health quality

measures, communication vehicles

and formats. The board would be

similar to the Advisory Council on

Health Care Quality, but play a more

substantive standard-setting role.

Assign to the board the task of

developing uniform quality

measurement and reporting criteria for

health care quality disclosure.

Mandate universal quality

measurement and reporting

requirements.

Develop training materials and

templates — health care guides — to

instruct those who offer assistance in

health care quality issues.

Protect employers, plan fiduciaries

and commercial health plans who

comply in good faith with the new,

health quality disclosure requirements

from liability suits.

Encourage the Department of Labor to

take interim steps to assist employers

and employees in understanding

health care quality indicators and to

demand information from providers.

Institute a disclosure provision that

requires benefit plan sponsors and

commercial health plans to report

significant, basic health quality

information identified by the quality

board.

Establishment of Pension Plans for

Small Businesses

Repeal of the “top-heavy” rules. A

plan is top-heavy if key employees

have accumulated 60 percent or more

of the contributions and benefits under

the plan.

Eliminate user fees. The IRS has for

many years issued determination

letters to employers opining that their

retirement plan conforms to the rules

established under the Internal

Revenue Code for qualified retirement

plans. As part of the Revenue Act of

1987, Congress directed the IRS to

collect user fees for these

determination letters.

Increase the limits on benefits and

contributions.

Increase the limits on includable

compensation. Under ERISA, there

was no dollar limit on the amount of

annual compensation taken into

account for purposes of determining

plan benefits and contributions.

Develop a national retirement policy.

Promote the development of coalitions

to offer pooling vehicles for small

employers.

Offer tax incentives for employers

without a qualified plan to adopt a

plan.

—

39





—
























Accounting

Marilee P. Lau*

KPMG Peat Marwick

Investment Management

J. Kenneth Blackwell

Treasurer, State of Ohio

Actuarial Counseling Field

Michael Gulotta

Actuarial Sciences Associates

Employee Organizations

(Multiemployer Plans)

Michael R. Fanning

Central Pension Fund, International Union

of Operating Engineers and Participating

Employers

Judith F. Mazo

The Segal Company

Judith Ann Calder

Abacus Financial Group, Inc.

Employer Organizations

Janie Greenwood-Harris

Mercantile Bancorporation

Neil M. Grossman

William M. Mercer

Rose Mary Abelson

Northrop Grumman Corp.

General Public

Dr. Thomas J. Mackell, Jr.

Simms Capital Management, Inc.

General Public (Pensioners)

Richard “Dick” Tani

(retired from) William M. Mercer

James O. Wood

Louisiana State Employees’ Retirement

System (LASERS)

Investment Counseling

Eddie C. Brown

Brown Capital Management

Insurance Industry Field

Kenneth S. Cohen**

Massachusetts Mutual Life Insurance

Co.

Corporate Trust

Barbara Ann Uberti

Wilmington Trust Company

ERISA Advisory Council 1998 Members

Named Chair of Council for 1998.

Named Vice Chair of Council for 1998.

40

Restate support of the

recommendations made by the 1997

Working Group on Defined

Contribution vs. Defined Benefit

Plans to create a simplified defined

benefit plan.

*

**