U.S. Department of Labor

Pension and Welfare Benefits Administration

Employee Retirement

Income Security Act

2000 Report to Congress
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 Publications Hotline

at: 1-800-998-7542

This material will be made available in alternate format upon request:

Voice phone: (202) 219-8921

TTY: (202) 501-3911

This booklet constitutes a small entity compliance guide for purposes of the

Small Business Regulatory Enforcement Fairness Act of 1996.
U.S. Department of Labor

Pension and Welfare Benefits Administration

Employee Retirement

Income Security Act

2000 Report to Congress
Introduction ............................................................................ 1

Overview of PWBA’s Organization...................................... 2

Highlights ............................................................................... 7

Enforcement ........................................................................... 8

Outreach, Education & Assistance..................................... 11

Regulatory Activities ........................................................... 14

Policy and Research............................................................. 16

Accounting and Auditing..................................................... 17

Exemptions ........................................................................... 19

ERISA Advisory Council .................................................... 22

Appendix A ........................................................................... 25

Appendix B ........................................................................... 37

Table of Contents
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 1

Introduction

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

administers and enforces 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 families. The role of PWBA has evolved

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 passage of the

following health care legislation also

added new responsibilities:

• The Health Insurance Portability

and Accountability Act of 1996

(HIPAA)

• The Mental Health Parity Act of

1996 (MHPA)

• The Newborns’ and Mothers’

Health Protection Act of 1996

(NMHPA), and

• The Women’s Health and Cancer

Rights Act of 1998 (WHCRA)

The Savings are Vital to Everyone’s

Retirement (SAVER) Act of 1997

required the Secretary to maintain an

ongoing program of public outreach

to effectively promote retirement

savings and to plan and coordinate

three National Summits on

Retirement Savings.

In carrying out these responsibilities,

the Agency undertakes a wide range

of activities, including research,

policy development, regulatory

guidance and interpretation, enforcement, participant and compliance

outreach and assistance.

The Agency’s mission is to:

• Assist workers in getting the

information they need to protect

their benefit rights;

• Assist plan officials to understand

the requirements of the relevant

statutes in order to meet their legal

responsibilities;

• Develop policies and laws that

encourage the growth of

employment-based benefits; and,

• Deter and correct violations of the

relevant statutes.

This report details the accomplishments of the Agency in calendar year

2000.
2 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

Overview of PWBA’s Organization

PWBA, headed by an Assistant

Secretary and two Deputies, accomplishes its mission through the

collective efforts of seven program

and two management support offices

based in PWBA’s headquarters in

Washington, D. C., and 15 field

offices. The field offices are organized

into 10 regional offices located in

Atlanta, Boston, Chicago, Cincinnati,

Dallas, Kansas City, Los Angeles,

New York, Philadelphia and San

Francisco, and five district offices

located in Detroit, Miami, Seattle, St.

Louis and Washington, D. C. The

Agency also provides support for a

bipartisan, independent council that

considers current benefits issues

under ERISA and makes

recommendations to the Secretary

of Labor.

Assistant

Secretary

Deputy Assistant

Secretary for

Program Operations

Deputy Assistant

Secretary for

Policy

Office of

Policy and

Research

Office of

Exemption

Determinations

Office of Health

Plan Standards

and Compliance

Assistance

Office 

of Information

Management

Regional Offices 

Office of 

Participant

Assistance and

Communications

Office of 

Program Planning

Evaluation and

Managerment

Office of 

Regulations and

Interpretations

Office of the 

Chief Accountant

Office of

Enforcement

Boston

New York

Philadelphia

Atlanta

Cincinnati

Chicago

Kansas City

Dallas

Los Angeles

San Francisco

A description of the program offices

follows.

Office of Enforcement

Title I of ERISA imposes substantial

law enforcement responsibilities on

the Department of Labor. Additional

law enforcement responsibilities

regarding employee benefit plans are

imposed by Federal criminal laws.

The goal of these statutes is to ensure

the integrity and fairness of the

private employee benefits plan system

in the United States. Section 504 of

ERISA authorizes the Secretary of

Labor to conduct investigations of

potential violations of ERISA’s

fiduciary provisions.

PWBA’s National Office of Enforcement (OE) provides leadership and

coordinates the Agency’s enforcement program through activities

directed toward:

• policy formulation,

• project identification and program

planning,

• guidance development and

implementation,

• field liaison, and

• field and project evaluation.

Investigations to detect and correct

violations of Title I of ERISA and

related criminal laws are conducted

by the investigative staff in PWBA’s

field offices. As of December 31,

2000, PWBA has 334 investigators in

the field. Civil litigation and other

legal support are provided by the

Solicitor’s Office and criminal

prosecutions are handled by the

Department of Justice.

The Office of Enforcement is headed

by a director who oversees the

Division of Field Operations, which

coordinates national civil enforcement policy with PWBA field offices

and various governmental agencies;

the Division of Enforcement Support,

which oversees national targeting

efforts and provides technical and

administrative assistance to PWBA

field offices; and the Criminal Coordinator, who coordinates national

criminal enforcement policy with

PWBA field offices and with other

governmental agencies such as the

Department of Justice.
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 3

Legal support for its investigations is

primarily provided by the

Department’s Office of the Solicitor,

both through the Regional Solicitors’

offices and the Plan Benefits Security

Division in the National Solicitor’s

Office.

Office of Participant

Assistance and

Communications

The new Office of Participant Assistance and Communications (OPAC)

was created in 2000 to improve the

delivery of outreach, participant

assistance, retirement and health

benefits education to individuals in

benefit plans covered by the

Employee Retirement Income Security Act (ERISA).

Today, PWBA employs 108 highly

trained and dedicated Benefits

Advisors who work out of PWBA’s

regional and national office. These

Benefits Advisors respond to telephone and written inquiries from plan

participants, employers and plan

sponsors, assisting them in understanding their rights and obligations

under the law and in obtaining

benefits that may have been denied.

OPAC develops the strategic plan,

provides guidance, establishes

policies and operating procedures,

and oversees quality reviews and

customer satisfaction surveys related

to the Agency’s outreach, education

and assistance program, providing

support to the regional offices in

carrying out these activities. Its

Division of Quality Assurance

monitors and evaluates participant

assistance activities performed by

OPAC’s Divison of Technical Assistance and Inquiries and by the 10

regional offices.

OPAC is also responsible for external

communications with the public

through a variety of methods

including the media, public outreach

activities, brochures, other educational materials, national educational

campaigns, public service announcements, PWBA’s Web site, and

participant and compliance assistance

activities. OPAC’s media team

coordinates media releases for

significant enforcement actions,

important litigation actions and

program initiatives. The Office leads

the development and publication of a

variety of educational materials for

consumers and plan officials and is

responsible for policy and the content

of the Agency’s Web site. The Office

is also responsible for coordinating

two major education campaigns —

the Retirement Savings Education

Campaign and the Health Benefits

Education Campaign.

OPAC also staffs the ERISA

Advisory Council, providing logistical, clerical and technical support

throughout the year and is responsible

for responding to Freedom of Information requests and for the operation

of the Agency’s Public Disclosure

Room.

OPAC is managed by a director who

reports to the Deputy Assistant

Secretary for Program Operations.

The Director is assisted by two

deputy directors responsible for

participant assistance and

communications, respectively.

Office of Regulations and

Interpretations

ERISA assigns substantial regulatory

authority and interpretive responsibilities to the Secretary of Labor. The

Office of Regulations and Interpretations (ORI) is the organizational unit

within PWBA primarily responsible

for carrying out the Agency’s regulatory agenda and interpretive activities. The Office also coordinates, as

appropriate, the Agency’s regulatory

and interpretive activities with other

Federal agencies such as the

Department of Treasury, the Internal

Revenue Service and the Pension

Benefit Guaranty Corporation. The

Office plays a major role in the

development, analyses and implementation of pension and health care

policy by providing technical

assistance and support to the Assistant Secretary, external groups and

other offices within PWBA.

ORI is headed by the Director of

Regulations and Interpretations, who

operates with the assistance of two

senior-level advisors and two division

managers. The general interpretive

and regulatory responsibilities of the

Office are allocated on a subject

matter basis between two divisions,

the Division of Fiduciary Interpretation and the Division of Coverage,

Reporting and Disclosure.

The Division of Fiduciary Interpretations is generally responsible for

interpretive and regulatory matters

pertaining to the qualified domestic

relations order, fiduciary responsibility, preemption, and qualified medical

child support order provisions of
4 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

Parts 2, 4, and 6 of Title I of ERISA,

as well as related provisions of the

Code of Federal Regulations and the

Federal Employees Retirement

System Act of 1986 (FERSA).

The Division of Coverage, Reporting

and Disclosure is generally responsible for interpretive and regulatory

matters relating to the coverage,

reporting, disclosure, suspension of

benefits, claims procedure, multiple

employer welfare arrangements,

COBRA and other provisions of Parts

1, 2, 5 and 6 of Title I of ERISA.

Both components of the Office

perform a significant role in providing technical assistance to the senior

policy officials of the Agency and the

various other program offices, as well

as other federal agencies.

Office of Policy and

Research

ERISA requires the Department to

engage in economic research, consider and disclose the economic

effects of its regulatory actions, and

participate in legislative and policy

deliberations that affect private

employee benefits. These activities

are carried out by PWBA’s Office of

Policy and Research (OPR).

ERISA Section 513 directs the

Secretary of Labor to undertake

research studies on pension issues,

with authorization to study health and

other benefit issues. OPR maintains a

program of policy research directed

toward PWBA’s statutory role and

policy priorities.

ERISA also directs or authorizes the

Secretary to promulgate regulations

interpreting and implementing certain

of its provisions. Several other

Federal statutes, including the Paperwork Reduction Act, the Regulatory

Flexibility Act, the Small Business

Regulatory Enforcement Fairness Act

and the Unfunded Mandates Act,

require all Federal regulatory agencies to consider and disclose the

economic effects of their regulatory

actions. PWBA satisfies these

requirements through OPR’s

participation in the development and

promulgation of all of its regulations.

PWBA’s responsibility to administer

Title I of ERISA makes it both a

respository of unique technical

expertise on employee benefit issues

and a critical participant in legislative

and policy deliberations that affect

benefits. OPR houses PWBA’s staff

specifically dedicated to legislative

activities.

The Director of OPR reports to

PWBA’s Deputy Assistant Secretary

for Policy. The Director is supported

by two deputies, one with primary

responsibility for OPR’s policy and

legislative activities and the other

with primary responsibility for its

research and regulatory activities.

OPR’s staff is organized into four

interdisciplinary teams. Staff reporting to the Deputy Director for Policy

and Legislation include two policy

and legislative teams — one dedicated to pensions and one to health

benefits — and PWBA’s chief

actuary. The Deputy for Research

and Regulations oversees the data

team, which houses PWBA’s in-house

quantitative expertise and produces

PWBA’s key data on benefit trends,

and the regulatory team, which

contributes the mandatory analytic

expertise to PWBA’s regulatory

projects, as well as the management

of policy research projects carried out

under contracts with private vendors.

Office of the Chief

Accountant

ERISA requires certain employee

benefit plans to file detailed annual

financial reports. Some of these

employee benefit plans must also

obtain an audit report from a qualified

independent accountant to help

ensure the completeness and accuracy

of the information provided in these

reports. In addition, FERSA assigns

responsibility to the Secretary of

Labor to carry out audits to determine

the level of compliance with the

fiduciary requirements of FERSA.

The Office of the Chief Accountant

(OCA) of PWBA is the organizational unit that is primarily responsible for the administration of these

responsibilities.

OCA is primarily concerned with

annual reporting and audit requirements by employee benefit plans, and

enforcement of those provisions

through the imposition of civil

penalties of up to $1,100 per day

against a plan administrator whose

annual report is rejected, as provided

in Part 1, Sections 103 and 104, and

Part 5, Section 502 of Title I of

ERISA. OCA also operates under the

broad authority to conduct investigations and to inspect records, under

Part 5, Section 504 of Title I of

ERISA.
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 5

The Office is headed by the Chief

Accountant, who reports to the

Deputy Assistant Secretary for

Program Operations. OCA carries

out its activities using staff from three

operating divisions: the Division of

Accounting Services (DAS), the

Division of Reporting and Compliance (DRC) and the Division of

FERSA Compliance (FERSA). DAS

actively performs numerous liaison

and outreach activities with professional groups that service employee

benefit plans and ensures that plan

audits are done in accordance with

industry standards. DRC ensures that

the ERISA database contains timely,

complete and accurate information

about the regulated plan community.

FERSA conducts fiduciary compliance audits of the Thrift Savings Plan.

These divisions also work extensively

as teams on special projects and

group activities common to each

organizational component.

The Office devotes approximately 80

to 90 percent of its resources to frontline enforcement activities and

customer services activities directly

impacting the public and plan

professionals.

Office of Health Plan

Standards and Compliance

Assistance

In September 1996, in response to the

significant health care responsibilities

given to the Secretary of Labor under

the Health Insurance Portability and

Accountability Act of 1996 (HIPAA),

a Health Care Task Force was established to develop regulations and

other interpretive guidance required

to implement the new requirements

imposed on employer-sponsored

health plans. These include the

provisions of Part 7 of Title I of

ERISA, as added by HIPAA, the

Newborns’ and Mothers’ Health

Protection Act of 1996 (Newborns’

Act), the Mental Health Parity Act of

1996 (MHPA), the Women’s Health

and Cancer Rights Act of 1998

(WHCRA). The enactment of these

health care laws marked a turning

point in how group health plans are

regulated at the Federal level and

significantly changed the nature and

scope of PWBA’s interpretive and

administrative responsibilities. The

health care provisions in HIPAA,

Newborns’ Act, and MHPA created

shared jurisdiction and shared

regulatory responsibility for the

Departments of Labor, the Treasury,

and Health and Human Services. The

health care provisions in WHCRA

only created shared jurisdiction and

regulatory responsibility for the

Departments of Labor and Health and

Human Services.

The permanent Office of Health Plan

Standards and Compliance Assistance was established in December

1999. This office is the primary

source of regulations and interpretations and compliance guidance

related to the health care provisions

imposed on group health plans

(HIPAA, Newborns’ Act, MHPA,

WHCRA) and provides education,

technical assistance and compliance

assistance to health plans and plan

administrators, other federal and state

agencies with related responsibilities,

policy makers, PWBA program and

field offices, and participant and

beneficiaries on health care matters.

This office also has regulatory responsibility for the Form M-1, a reporting

requirement of Multiple Employer

Welfare Arrangements (MEWA).

OHPSCA is managed by a Director

who reports to the Deputy Assistant

Secretary for Program Operations. A

Deputy Director who assists in the

management of the Office supports

the Director.

Office of Exemptions

Determinations

The prohibited transaction provisions

of ERISA restrict plan fiduciaries

from causing employee benefit plans

to engage in transactions with certain

parties who have pre-existing relationships to a plan and from acquiring or

holding employer property. These

provisions also prohibit plan fiduciaries from engaging in transactions that

involve self-dealing or conflicts of

interest.

The prohibited transaction restrictions

cover a wide range of transactions.

However, ERISA authorizes the

Secretary of Labor, through his or her

authorized designate, to grant individual or class exemptions that relieve

plan fiduciaries from all or part of

these restrictions. In order to grant an

exemption, a determination must be

made that the exemption would be

administratively feasible, in the

interests of the plan and its participants and beneficiaries and protective

of the rights of the plan’s participants

and beneficiaries.
6 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

PWBA’s Office of Exemption

Determinations (OED) has been

delegated the responsibility for

processing requests for individual

and class exemptions from ERISA’s

prohibited transaction provisions.

OED is comprised of two divisions,

the Division of Individual Exemptions and the Division of Class

Exemptions. The Division of Individual Exemptions is staffed by a

division chief and three teams of

analysts, each of which is headed by

a supervisor or team leader. The

primary responsibilities of the

Division of Individual Exemptions

include analyzing individual exemption applications that involve a wide

array of financial transactions,

conducting denial conferences,

preparing interpretive letters and

Federal Register notices and reviewing petitions for good- faith waivers

of Section 502(l) penalties of ERISA.

The Division of Class Exemptions is

staffed by a division chief, a team

leader and four analysts. The primary

responsibilities of this division

include analyzing applications for

class exemptions, and major individual exemptions related thereto,

conducting denial conferences,

preparing Federal Register notices,

reviewing petitions for good-faith

waivers of Section 502(l) penalties of

ERISA, drafting advisory opinions

and information letters regarding

class exemptions and handling special

projects.

ERISA Advisory Council

Section 512 of ERISA provides for

the establishment of an Advisory

Council on Employee Welfare and

Pension Benefit Plans. The Council

consists of 15 members appointed by

the Secretary of Labor: three representatives of employee organizations

(at least one of whom represents an

organization whose members are

participants in a multi-employer

plan); three representatives of

employers (at least one of whom

represents employers maintaining or

contributing to multi-employer

plans); one representative each from

the fields of insurance, corporate

trust, actuarial counseling, investment

counseling, investment management,

and accounting; and three representatives of the general public (one of

whom represents those receiving

benefits from a pension plan). Members must be qualified to appraise the

programs instituted under ERISA.

Members are appointed for three-year

terms, with five terms expiring on

November 14 of each year.

The duties of the Council are to

advise the Secretary and submit

recommendations regarding the

Secretary’s functions under ERISA.

The Council customarily holds four

meetings each year that are open to

the public.
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 7

2000 Highlights

Leslie Kramerich served as the

Assistant Secretary of the Agency

throughout Calendar Year 2000.

Some of the accomplishments of the

Agency in 2000 are highlighted

below:

• In the area of enforcement, the

Agency closed a total of 4,510

civil and criminal cases and

recovered $538.3 million.

• Building on its enforcement record

by targeting major areas to direct

and harness its resources, the

Agency implemented the Rapid

ERISA Action Team (REACT) to

quickly respond to the problem of

bankruptcies faced by a growing

number of plan sponsors.

• Benefits Advisors handled nearly

158,000 inquiries and assisted

participants in recovering more

than $69 million in unpaid

benefits.

• During its first year of operation,

the Department processed more

than 1.2 million plan filings

through the ERISA Filing Acceptance System (EFAST).

• A Help Desk was established to

provide technical assistance to the

filing public on the Form 5500 and

Form 5500-EZ reports, responding

to more than 7,000 technical

assistance inquiries during a

six-month period.

• Final regulations for a streamlined

and simpler annual reporting

process for employee benefit plans

were published.

• Educational and compliancerelated materials were developed to

help to educate plan administrators, participants and beneficiaries,

and the states on their rights and

responsibilities under the new

health care laws.

• The year 2000 marked the 5th year

of the Agency’s Retirement

Savings Education Campaign, and

the beginning of a new partnership

with the U.S. Chamber of Commerce, the Small Business Administration and Merrill Lynch to

encourage small business owners

to provide a retirement savings

program for their workers.

• The Health Benefits Education

Campaign marked its second

anniversary in 2000, highlighting

its 65 partner organizations, which

continue to work together to create

new participant educational

material through committee

participation.
8 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

Enforcement

Figure 1. Both civil and criminal cases may continue from one calendar year to the next

(i.e., a case opened in 1999 may not be closed until 2000). The numbers in the chart above

represent totals for the 1999 calendar year.

 In 2000, PWBA recovered $538.3

million for employees in private

employee benefits plans. This monetary recovery resulted from the

Agency’s closing of 4,355 civil cases

and 155 criminal cases, which

included 103 indictments

(see Figure 1).

PWBA identified and targeted six

major areas in which its resources

could have the most impact on

protecting plan assets and participants’ benefits. These six areas also

represented the Agency’s national

enforcement projects, some of which

have been operational for several

years. These projects are the Rapid

ERISA Action Team, Multiple

Employer Welfare Arrangements,

Administrative Services Only,

Employee Contributions, Orphan

Plans and Health Disclosure and

Claims Issues. The Agency’s

accomplishments in 2000, with

respect to each of these projects, are

summarized below.

Rapid ERISA Action Team

(REACT) Project

PWBA launched the REACT initiative in the fall of 2000 to carry out its

mission to protect the benefits of plan

participants and beneficiaries and to

respond to the growing number of

plan sponsors filing for bankruptcy.

REACT aggressively targets plan

sponsors who are facing severe

financial hardship or who have filed

for bankruptcy. The initiative was

developed based on the Agency’s

experience with bankruptcies of plan

sponsors, in which plan assets were

placed in jeopardy.

Under REACT, PWBA responds to

employer bankruptcies by ensuring

that all available legal actions have

been taken to preserve employee

benefit plan assets. When a company

has declared bankruptcy, PWBA will

take immediate action to ascertain

whether there are plan contributions

that have not been paid to the plan’s

trust, to advise all affected plans of

the bankruptcy filing, and to provide

assistance in filing proofs of claim to

protect the plans, the participants and

the beneficiaries. PWBA will also

attempt to identify the assets of the

responsible fiduciaries and evaluate

whether a lawsuit should be filed

against those fiduciaries to ensure that

the plans are made whole and the

benefits secured.

Multiple Employer Welfare

Arrangement (MEWA)

Project

A Multiple Employer Welfare

Arrangement (MEWA) is a welfare

benefit plan or other arrangement that

is set up to benefit the employees of

two or more employers.

When employers are either unable to

find or cannot afford the cost of

health care coverage for their employees, they may look to MEWAs for

coverage. In 2000, PWBA continued

to find instances where MEWAs have

been unable to pay claims as a result

of insufficient funding and inadequate

reserves, or in worse situations, where

they were operated by individuals

who drained the MEWA’s assets

through excessive administrative fees

or by outright theft. The Agency

continued to focus its resources in

this area on abusive and fraudulent

MEWAs created by unscrupulous

promoters that sell the promise of

inexpensive health insurance, but

default on their obligations.

Civil Investigations

5,061Opened

115

Opened

4,355Closed

155

Closed

103

Indictments

$538.3Million

Monetary

Recoveries

Criminal Investigations
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 9

PWBA maintains an aggressive

enforcement program with respect to

MEWAs and MEWA-related programs. The Agency’s highest priority

in its investigation of MEWAs

is the immediate shutdown of

MEWAs that are operating in a

fraudulent and/or dangerous manner.

As of Sept. 30, 2000, PWBA had 87

ongoing MEWA and MEWA-related

investigations of which 15 were

criminal investigations. As of the

same date, PWBA had filed 40 civil

complaints against fraudulent MEWA

operators and indicated 78 individuals

and issued 64 convictions.

PWBA also publishes the Form M-1,

which is a form required to be filed

under section 101(g) of ERISA by

MEWAs.

Administrative Services

Only Project

This PWBA enforcement project

involved investigation of insurance

companies that provided only administrative services to self-funded

welfare plans. The Agency’s

objective is to determine whether fee

reductions or discounts obtained from

medical service providers have been

passed on to the plans or to their

participants.

In 2000, after the Agency interacted

with a major service provider in a

voluntary correction process, PWBA

decided to investigate whether there

were more widespread problems with

the practice employed by insurance

companies in billing plans and

compensating service providers who

render services to plans. The problems appeared to be occurring in

administrative services only-type

arrangements and in managed care

network arrangements set up by

insurance and health care companies

where plans are self-insured or

partially self-insured. Under the

Administrative Services Only Project,

PWBA has recovered $72 million on

behalf of plans and participants.

Employee Contribution

Project

Since 1995, PWBA has pursued an

aggressive enforcement project

intended to safeguard employee

contributions to 401(k) plans and

health care plans by investigating

situations in which employers delay

forwarding employee contributions

into these plans. In some cases,

employers do not promptly forward

the contributions to the appropriate

funding vehicle. In other cases, the

employer simply converts the contributions to other uses, such as business

expenses. Both scenarios may occur

when the employer is having fiscal

problems and turns to the plan for

unlawful financing.

The Employee Contribution Project

has generated considerable attention

from Congress, participants and the

media. By raising public awareness,

the project further increased the

volume of participant complaints. An

intended impact of the publicity is to

put employers on notice that the

Department will vigorously pursue

recoveries of diverted contributions.

The Agency has recovered more than

$120 million for participants in

401(k) plans and health plans, and

has obtained convictions or guilty

pleas in 77 cases.

The project also led to the establishment of the Voluntary Pension

Payback Program, which resulted in

recovery of another $4.8 million for

plan participants.

Orphan Plan Project

PWBA initiated the Orphan Plan

Project on October 1, 1999, which is

designed to locate pension plans,

particularly 401(k) plans, which have

been abandoned by fiduciaries

through death, bankruptcy or incarceration. Under the project, PWBA

will also determine if a fiduciary can

be located to perform fiduciary

functions, such as terminating the

plan, distributing the plan’s assets and

filing appropriate financial reporting

forms, such as the terminal annual

report.

Through the project, the Agency takes

an active role in the appointment of

an independent fiduciary so that the

participants and beneficiaries can

receive their earned benefits. The

orphan plan initiative assists at-risk

populations, specifically those

participants who are in danger of

losing some or all of their retirement

savings.

Since the inception of the project

through December 31, 2000, PWBA

has opened a total of 393 orphan plan

civil cases and closed 135. More than

$42.1 million has either been protected or returned to plans and $29.3

million has been distributed to plan

participants. Thirty-one independent
10 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

fiduciaries have been appointed in 28

separate cases.

In 2000, PWBA opened 156 civil

cases in connection with the Orphan

Plan project. Through these cases,

the Agency succeeded in protecting

more than $60.4 million in plan assets

on behalf of participants and

beneficiaries of orphan plans.

Seven criminal cases have been

opened under the project and one has

been closed, with an individual being

indicted and convicted. PWBA also

coordinated with the Pension Benefit

Guaranty Corporation to ensure that

participants of defined benefit plans

that are adversely affected by orphan

plan situations are protected and that

joint efforts are pursued aggressively.

Health Disclosure and

Claims Issues Project

PWBA has, in recent years, applied

substantial enforcement resources to

targeting and investigating fiduciary

violations, as well as criminal violations, relating to health benefits plans.

PWBA’s role in the health care area

also has expanded as a result of

recent laws that expanded the

Agency’s responsibilities. The

Agency’s focus in the health area is to

ensure that self-funded plans are

financially sound and that plan

operators run their health plans

prudently and in the participants’ sole

interest.

In 2000, PWBA’s regional offices

conducted disclosure reviews as part

of all health plan-related investigations, and performed specific

disclosure compliance reviews on a

limited number of large single and

multi-employer plans or third-party

entities. Regions also focused on

situations where claims were not

being paid due to financial difficulties

of a trust or plan sponsor. Specific

targets were identified through

participant complaints and by working through service provider entities

that specialize in health care administration to identify clients who appeared to be negligent in meeting

their claims paying obligations. In

addition, the Project reviewed certain

group health plans for compliance

with the substantive provisions of the

new health care laws.

See Appendix A for a listing of some

of the significant civil and criminal

cases investigated in 2000.
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 11

Outreach, Education and Assistance

Figure 2.

Participant Assistance

and Outreach

PWBA expanded its participant

assistance and outreach programs in

2000 to educate and assist participants, beneficiaries and other

consumers about their rights under

the law and where to go for assistance

in helping them obtain benefits that

have been improperly denied. The

evolution of employee benefit programs toward arrangements, which

place substantial responsibilities on

participants to make decisions about

managing their retirement savings

and often require workers to make

significant choices on the enrollment

in health plans and access to care, has

led to a rapid increase in the need for

PWBA to provide effective communication and assistance to the public.

Plan participants need assistance in

understanding their rights under the

law; plan sponsors need assistance in

understanding their responsibilities so

that they are in compliance with the

laws and regulations. Workers who

are facing changes in their work

situations, such as loss of their job or

a reduction in their hours, or significant changes in their life situation,

such as marriage, divorce or childbirth, are particularly vulnerable and

need proper information to protect

their pension and health benefits and

make informed decisions.

In 2000, PWBA’s Benefits Advisors

provided direct assistance to157,993

participants who contacted the

Agency for information or help

resolving a benefit dispute, and

recovered more than $69 million in

benefit payments on their behalf.

(See Figure 2). Although the Benefits

Advisors handle the full range of

employee benefit inquiries, the vast

majority of the monetary recoveries

involve pension benefits, due to the

practical difficulty in placing a

monetary value on the restoration of

health care coverage.

Benefits Advisors recover benefits on

behalf of participants and beneficiaries as part of an informal resolution

process. Generally they are able to

resolve disputes and obtain promised

benefits on behalf of a participant or

beneficiary by explaining the requirements of ERISA to a plan administrator or other responsible party. When

benefits complaints that involve

possible fiduciary violations cannot

be resolved informally, the Benefits

Advisors refer them to PWBA’s

investigators. In 2000, 1,254

investigations were opened as a result

of referrals from Benefits Advisors;

1,048 cases referred were closed with

over $150 million in monetary

results.

Other times Benefits Advisors serve

as an independent source of reliable

information about ERISA by answering questions posed by plan sponsors,

plan administrators, and service

providers to plans. The public is able

to obtain technical assistance on

questions and problems at the local

level through PWBA’s 10 regional

offices and through its headquarters

in Washington, D.C.

With an increase in the Agency’s

responsibilities — including jurisdiction over four new major health laws

— the demand from workers and

their families for help in understanding these requirements significantly

increased. Under a more structured

nationwide program, PWBA adopted

for the first time in 2000, a strategic

plan for outreach, education and

assistance that requires its regional

offices to conduct grassroots outreach

designed to provide participant and

compliance assistance and to promote

the services of the Agency. The

Benefits Advisors conduct regional

briefings for congressional staff,

participant advocates, state and local

agencies, community based organizations and targeted participant groups,

such as dislocated workers, to inform

them about the Agency’s services and

to answer questions about their

benefits rights.

Summary of Inquiries

Calendar Year 2000

Benefit Recoveries

$69.58 million 

Telephone

136,857

Visits 821 Written 20,040

E-mail 275

Total Inquiries = 157,993
12 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

Education Campaigns

Retirement Savings

Education Campaign

PWBA completed another successful

year of education and outreach to

employers and workers about the

importance of saving for retirement

through its Savings Matters

Campaign.

The Campaign highlights in 2000

were the celebration of the 5th anniversary of the Retirement Savings

Education Campaign; the release of

Savings Fitness: A Guide to Your

Money and Your Financial Future;

co-sponsorship of the Everywoman’s

Money Conferences in six states; and

the formation of several key

partnerships.

In July of 2000, PWBA marked the

5th anniversary of its Retirement

Savings Education Campaign. At the

event, a new partnership was announced with the U.S. Chamber of

Commerce, the Small Business

Administration and Merrill Lynch to

encourage small business owners to

provide their workers a retirement

savings vehicle on the job. The

partner organizations co-developed a

new Web site for small businesses,

www.select-a-retirement-plan.org,

which provides an overview of the

benefits to businesses and employees

of having an employer-sponsored

savings plan, and describes various

plan options and the advantages of

each. The site features an interactive

tool to help small businesses select

the best plan for their particular

business.

In addition, PWBA entered into a

partnership with the Consumer

Federation of America (CFA) to reach

low- to moderate- income workers

through CFA’s America Saves program. The America Saves program is

a national initiative comprised of citywide campaigns that target low- to

moderate- income workers to join

America Saves and set savings goals,

participate in motivational workshops

and receive assistance in achieving

their goals. The program also encourages employers to educate their

workers on the importance of saving

and financial management. The pilot

city for the America Saves program is

Cleveland, Ohio.

PWBA also worked with the Certified

Financial Planner Board of Standards

to develop a comprehensive guide to

help individuals take control of their

financial lives in order to save adequately for their retirement. The new

booklet, Savings Fitness: A Guide to

Your Money and Your Financial

Future, was promoted nationally in

Parade magazine and hundreds of

small and medium size newspapers.

Four hundred thousand copies have

been distributed to date. It very

quickly became the most popular

publication of the Saving Matters

Campaign.

Another highlight for the Saving

Matters Campaign in 2000 was the

co-sponsorship of the Everywoman’s

Money Conferences. The conferences were held in Philadelphia,

Pennsylvania; Richmond, Virginia;

Indianapolis, Indiana; Minneapolis,

Minnesota; Newark, Delaware; and

Scranton, Pennsylvania. The conferences, designed to motivate women to

manage their money and plan for

their financial needs in the future,

were attended on average by a

capacity audience of 1,100 women of

all ages with a variety of educational

and professional backgrounds. The

conferences were featured in a

Business Week article for the unique

and high-spirited approach they

employed to reach and teach women

about money matters.

Health Benefits Education

Campaign

The Health Benefits Education

Campaign partnered with 65 health

benefits organizations to work with

the Agency on its effort to educate

consumers about their health benefits

rights and issues of quality under

their employer-provided health plans,

and to inform employers, particularly

small employers, of the value of

providing quality health benefits to

employees.

The year 2000 marked the second

year of the campaign, and the partners worked together to create new

consumer educational materials

through committee participation. The

Research Committee began by

researching its target population and

how its message should be crafted;

the Educational Committee determined what topical areas needed to be

addressed; and the Materials Development Committee developed a

prototype of the look for the

Campaign’s products.

At the second anniversary event in

December, the Department and its

partners announced a number of new

products. The first product was the
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 13

Health Benefits Passport. This is a

one-page document containing seven

basic points that everyone should

know about their health benefits. The

passport provides an attached wallet

card to serve as an emergency medical card containing basic contact

information for their physician, their

families and their health benefits

provider.

The second product developed by the

Campaign partners was the Employers’ Health Benefits Quality Briefcase. The briefcase is a Web-based

product that provides links to various

Web sites that offer useful information for employers on quality issues

to assist then when choosing health

plans.

The Agency also released some

additional educational tools. A

Mothers’ and Newborns’ card and

poster were developed to educate and

inform new moms and their doctors

about their rights under the Newborns’ and Mothers’ Health Protection Act of 1996. And a new poster

and card were developed describing

how to file a claim when a health

benefit is denied.

Media Relations

In 2000, 478 media inquiries were

handled on a broad range of topics

under the Agency’s jurisdiction,

including cash balance plan conversions, 401(k) plan fees, the patient

rights claims procedure rule, the

small plan asset rule, educational

outreach for pension and health

benefits, high-profile cases, such as

Capital Consultants, Inc. and Time

Warner settlements and promotion of

the electronic filing acceptance

system (EFAST) project and the

electronic filing of annual reports.

There were 165 media interviews

conducted in 2000 that resulted in

national publicity for Agency initiatives such as the 401(k) fees project.

A USA Today article published on

Oct. 30, 2000, re-enforced PWBA’s

association with 401(k) fees. More

than 30 newspaper and magazine

articles have appeared on the patients’

rights claims regulation. The rule was

highlighted on a recent Lifetime

channel segment about health care.

The Agency also released 124 press

releases on a variety of topics to

include enforcement actions, regulatory guidance, new filing requirements, program initiatives and other

matters.

ERISA marked its 25th anniversary in

2000. To commemorate the anniversary, staff developed a comprehensive

plan to provide visibility to the

participant assistance units located in

PWBA field offices across the

country. The objective was to promote the availability of technical

assistance help for participants and

beneficiaries at the local level.

0News releases on enforcement cases

carried standard language contact

information for regional offices; four

regional town hall meetings were

sponsored by PWBA regional offices

in Atlanta, Boston, Philadelphia and

San Francisco to provide outreach at

the local level; radio public service

announcements were developed; and

numerous articles were published

about the initiative.
14 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

Following are highlights of PWBA’s

regulatory program during the 2000

calendar year. As in the past, many of

these projects were done with partner

federal agencies that have concurrent

jurisdiction over the provisions.

PWBA continues to actively fulfill its

mission of administering federal

benefits laws by working to provide

guidance, including regulations.

Medical Child Support

Working Group

PWBA staff participated in a joint

Federal-State Medical Child Support

Working Group, which completed a

comprehensive report addressing

strategies for addressing impediments

to the effective enforcement of the

medical support obligations of

parents named in child support

orders. Representatives of the

Department of Health and Human

Services and various state government agencies, as well as privatesector employers and human resource

professionals, also participated in the

working group.

Employee Benefit Plan

Annual Reports: Revision of

the Form 5500 Series and

Related Regulations

In conjunction with the Internal

Revenue Service and the Pension

Benefit Guaranty Corporation, the

Department published final revisions

to the Form 5500 Series Annual

Return/Report for employee benefit

plans, together with final amendments of related regulations. The

revisions streamlined and simplified

the annual reporting process for

employee benefit plans.

Plans Established or

Maintained Under or

Pursuant to Collective

Bargaining Agreements

Under Section 3(40)(A) of

ERISA

The Department published proposed

regulations establishing criteria that

states could use to determine whether

a plan has been established or maintained pursuant to one or more

collective bargaining agreements for

purposes of Section 3(40) of ERISA.

Employee welfare benefit plans

meeting the proposed criteria would

be excluded from the definition of

multiple employer welfare arrangement (MEWA) under Section 3(40),

and consequently, not subject to state

regulation. The proposed regulations

also would create an administrative

process within the Department

through which an entity could

challenge a state’s conclusion that the

entity was a MEWA and not entitled

to the exclusion for collectively

bargained plans. The proposals were

developed with the participation of

state government and private-sector

stakeholders utilizing the negotiated

rulemaking process.

Health Insurance Portability

and Accountability Act

Implementation

PWBA finalized the interim final

regulations on the HIPAA nondiscrimination provisions and the

proposed rules for bona fide wellness

programs under HIPAA, published a

Request for Information on the

portability, renewability, and access

provisions of HIPAA, and published

the 1999 Form M-1. These regulations were developed through a threedepartment working group, including

the Department of Labor, the

Treasury, and Health and Human

Services.

State and Federal Liaison

Programs

PWBA maintained an extensive

federal liaison program with the 50

individual states and the U.S. territories to facilitate successful implementation of the new health care

provisions and resolve problems of

mutual concern. A federal/state

referral network was established and

maintained to allow representatives

from the 50 states, the U.S. territories

and the PWBA field offices to have

immediate access to contact

personnel in their region.

Regulatory Activities
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 15

PWBA staff participated in quarterly

meetings of the National Association

of Insurance Commissioners (NAIC)

to share experiences with current

practices and developed and maintained an Internet hyperlink system,

allowing plan sponsors, administrators and participants to roam freely

between Internet information available at the federal and state levels.

Technical assistance was provided to

other federal and state agencies on

ERISA’s health care provisions and

reviews draft regulations, interpretive

guidance, and policy statements

prepared by other Federal agencies to

ascertain their effect on group health

plan provisions.

A three-department working group

was formed to develop guidance and

facilitate compliance with and

enforcement of the health care

portability, non-discrimination and

other health care-related provisions of

Title I of ERISA. This required close

coordination with the Department of

the Treasury and the Department of

Health and Human Services.
16 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

Policy and Research

Under ERISA, the Secretary of Labor

is charged with carrying out research

studies on pension and other employee benefit topics. PWBA’s

research program investigates the

economics of private, voluntary

employee benefit programs, and

thereby serves to educate the public,

inform policy debates, and advance

the academic literature.

PWBA increased its emphasis on

research into how employers, especially small employers, decide

whether to offer benefits. Several

studies of whether and how health

benefits are offset by reductions in

other compensation were initiated,

and staff continued building a capacity to model how small employers’

and individuals’ decisions to purchase

health insurance respond to price and

interact with the composition of risk

pools. Progress was also made on

modeling how cohorts accumulate

pension wealth across careers.

PWBA updated its statistics on

employee benefits, publishing its

annual summary of pension plans’

annual reports, and disseminating on

the Agency website new findings on

pension and health benefit coverage

trends (both have edged up in recent

years).

The research program also supports

the Agency’s regulatory and enforcement activities. Ensuring that regulatory interpretations achieve ERISA’s

statutory goals while minimizing the

attendant burden on employee benefit

plans, especially plans sponsored by

small businesses, is an Agency goal.

In 2000, PWBA devoted increasing

research and analytic resources to

carrying out cost benefit analyses of

regulations, and more fully integrated

such analyses into the process of

developing or revising regulations.

Measuring and maximizing the

performance of its core programs is

also a top concern of the Agency.

Increasingly, statistical and analytic

resources were devoted to establishing baseline measures of ERISA

compliance that can be used to

measure the results of enforcement

efforts.

PWBA’s policy staff provided assistance on legislative proposals that

would simplify pension rules and

improve portability; expand retirement savings opportunities and

enhance pension security; 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 patients’ rights

legislation and health care quality.

Assistance was also provided to

Congress and the Administration on

issues raised in the conversion of the

defined benefit pension plans to cash

balance plans.
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 17

PWBA implemented a multifaceted

strategy to assist the employee

benefits community in complying

with the reporting and disclosure

requirements of ERISA.

Traditionally, PWBA enforces

ERISA’s reporting and disclosure

provisions by imposing civil penalties

against plan administrators for their

failure to submit a complete and

accurate Form 5500 Annual Report to

the Department. In 2000, PWBA

assumed a more prominent, proactive

role in processing the Form 5500

filings by providing the filing public

with a better understanding of

ERISA’s filing requirements and the

necessity of requiring certain information. The Agency also established

several programs designed to educate

plan professionals, to provide quality

customer service and to encourage

voluntary compliance through

reduced fines.

With respect to Form 5500 filings,

PWBA performs the quality assurance function for the ERISA Filing

Acceptance System (EFAST).

EFAST is the new computerized

system developed by PWBA, the

Internal Revenue Service and the

Pension Benefit Guaranty Corporation to streamline the filing and

processing of the new Form 5500 or

Form 5500-EZ, by relying on computer-scannable forms and technologies. For 1999 plan year filings, the

Form 5500 had been substantially

revised and, for the first time, the

Labor Department began to process

more than 1.2 million filings.

Accounting and Auditing Activities

In March 2000, the Agency established the EFAST Help Desk to

provide technical assistance to the

public in filing the Form 5500 and

Form 5500-EZ reports.

The Help Desk is staffed five days a

week by 10 employees in the

Agency’s National Office, and also

provides assistance to callers, through

a voice mail message system, who

seek help after business hours, on

holidays, week-ends or during peak

times when volume is heavy.

Through the Help Desk, the Agency

received and responded to more than

7,000 technical assistance inquiries

during the initial six-month period

assisting callers on how to accurately

prepare the Form 5500. In addition,

the Agency retained a contractor to

assist with the high volume of

telephone calls, whose staff was

trained by PWBA employees. The

Agency also provided quality-control

assistance on the EFAST project by

reviewing edit test correspondence

and creating and assessing the

adequacy of the edit test logic.

More than 2,400 filers mailed nonprocessable items, including nonstandard correspondence to EFAST,

and the Agency responded. Its

responses included offering clarifications and explanations that generally

assisted plan administrators on how

to properly resubmit their Form 5500

filings to EFAST.

PWBA was also at the forefront in

providing compliance assistance and

education to the employee benefits

community. It co-hosted an aggressive outreach program, which presented more than 15 seminars,

workshops and panel discussions with

various plan benefit industry groups

throughout the country.

Partnerships with these industry

groups enable the Agency to reach a

wide range of plan administrators and

service providers on relevant topics

regarding ERISA’s reporting and

disclosure rules. In addition, the

American Institute of Certified Public

Accountants (AICPA) and PWBA

jointly conduct an annual conference

that attracts hundreds of auditors

interested in honing their skills and

learning the latest about audits of

employee benefit plans. PWBA also

worked with the AICPA to update

guidance for auditing employee

benefit plans.

The Agency conducted a qualitycontrol program for improving audit

work performed by independent

qualified public accountants. Under

the program that monitors the performance of independent qualified

public accountants, the Agency

reviewed plan filings to determine if

acceptable audit reports were submitted; made on-site visits to certified

public accountant firms to review and

assess the quality of audit work

performed; and referred certified

public accountants who performed

substandard audit work to the professional ethics division of the AICPA or

state boards of public accountancy.
18 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

PWBA performed 71 on-site reviews

and analysis of audit work papers that

supported the accountant’s report.

It also conducted fiduciary compliance audits of the Thrift Savings

Program as required by the Federal

Employees’ Retirement System Act

of 1986. As of Dec. 31, 2000, the

TSP had more than $97 billion held

in the 2.5 million accounts of Federal

employees. DOL’s audits were

designed to provide oversight of the

Federal Retirement Thrift Investment

Board (FRTIB) and its executive

director, and to ensure that they meet

fiduciary requirements by operating

the TSP prudently and solely in the

interest of the participants and their

beneficiaries. During 2000, the

FRTIB continued to re-engineer its

TSP recordkeeping system with many

enhancements.

These enhancements will ultimately

include implementing completely

new TSP recordkeeping software,

including replacing the current TSP

bookkeeping system by converting

from monthly to daily account

valuations with new individual

account unit valuations; establishing

two new TSP investment funds and

providing for TSP participation by the

U.S. armed forces’ members, as

required by Congress. The FRTIB

has successfully complied with

OMB’s Y2K guidelines.

The Agency continued its strategy of

encouraging plan administrators to

voluntarily comply with ERISA’s

reporting and disclosure requirements

in order to reduce penalties and fines.

Its Delinquent Filer Voluntary Compliance Program (DFVC) encourages

plan administrators to file previously

unfiled Form 5500 Series annual

reports and to resolve late filer

penalties. In addition, the program

permits plan administrators of top hat

plans (a pension plan in which the

value of benefits for officers and

owners exceeds 60 percent of the

value of benefits for ordinary employees) and apprenticeship and

training plans who missed their filing

deadlines to submit statements and

elect an alternative method of

compliance in lieu of filing an annual

report.

DFVC simplifies the filing process

and reduces the financial hardship

for voluntary compliance for small

business through smaller fines. In

2000, approximately 2,300 plans

chose to take advantage of the DFVC

program, and the DFVC collected

more than $6.5 million in civil

penalties.

The reporting compliance program is

divided between three groups: 1)

deficient filers, 2) late filers and 3)

non-filers. Penalties are imposed on

plan administrators for their failure

to submit timely, complete and

accurate Form 5500 Series Annual

Reports with the Department.

Approximately $13 million civil

penalties were assessed against plan

administrators under the Agency’s

reporting program for filing deficient

Form 5500 Series Annual Reports.

More than $8.6 million was assessed

against late filers and non-filers.

Plan Audit Reviews–2000

Number of Reporting Compliance Cases ......................................... 2,873

Reviews of Auditors’ Work Papers ........................................................ 71

Total Audits Referred .......................................................................... 400

 State Licensing Boards ....................................................................... 81

 AICPA............................................................................................... 319

Resolutions–AICPA............................................................................. 308

 Referred to AICPA Trial Board for Settlement .................................. 93

 Letters for Corrective Action ............................................................ 170

 No Deficiencies .................................................................................. 19

 Closed for Other Reasons ................................................................... 26
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 19

In 2000, PWBA received 106 exemption applications, granted 84, and 47

were denied or withdrawn by the

applicant. The Agency permitted a

wide variety of transactions that were

beneficial to employee benefit plans

through either the class or individual

exemptions it granted. Some of the

major ones are summarized below.

Class Exemption Overview

Temporary Amendment to

a Class Exemption

The Agency granted a temporary

amendment to an existing class

exemption. Prohibited Transaction

Exemption 80-26, which permits

related parties to make interest-free

loans, was expanded to cover situations in which a loan could be made

to a plan to address liquidity shortfalls

caused by Y2K computer problems.

If a Y2K problem had materialized,

the amendment would enable plans to

continue to pay benefits and engage

in necessary financial transactions.

EXPRO Exemption

Overview

Forty-one applications were received

by the Agency in connection with the

Class Exemption to Permit Certain

Authorized Transactions between

Plans and Parties-in-Interest

(EXPRO). This class exemption,

which was granted in 1996, permits

prospective routine prohibited transactions, where such transactions are

specifically authorized by the Agency

and are determined to be substantially

similar to two individual exemptions

that were previously granted by the

Exemptions

Agency. EXPRO also offers a more

expeditious exemption process. In

2000, the Agency granted 33

exemptions.

Several of the exemptions granted

under EXPRO permitted plans to

invest in asset-backed securities. The

creation and marketing of assetbacked securities by entities that are

parties in interest and/or fiduciaries to

employee benefit plans is customary

for structural finance transactions that

are commonplace in a number of

industries (including the credit card

industry, the mortgage industry, the

automobile industry, etc.).

These exemptions permit plans to

take advantage of investment opportunities to achieve current market

returns through investment in pools of

receivables that, taken together, have

received a rating from a nationally

recognized rating agency as high or

higher than that of other debt instruments in which the plans are currently

permitted to invest. Since assetbacked securities have become a

major component of the market in

fixed-income securities, these exemptions allow plans to access an important part of that market, while ensuring that plan investors are protected

by strict standards and safeguards,

which are consistent with the requirements of the rating agencies.

Additionally, significant individual

exemptions were granted under

EXPRO to permit purchases and sales

of securities and extensions of credit

(i.e., for settlement of such transactions or the writing of options contracts related thereto). PWBA also

granted EXPRO exemptions permitting securities lending arrangements

between employee benefit plans and

certain affiliates of major financial

institutions, which are foreign brokerdealers or banks. Such exemptions

increased the number of potential

counterparties that plans may use to

enter into securities transactions and/

or earn additional income by lending

securities otherwise held by the plan

for investment where entities involved

are service providers or fiduciaries to

such plans.

Individual Exemptions

There were three individual exemptions granted in 2000 for the provision of asset allocation advice and

related services, and for the purchase

or sale of interests in affiliated or

unaffiliated mutual funds or other

collective investment vehicles, by

entities acting as service providers

and fiduciaries to the affected plans.

These exemptions permit the provision of professional investment

management and/or asset allocation

advice service to participants who

direct the investment of their account

balances. These exemptions address

potential conflicts of interest and also

include a number of additional

safeguards so that the affected plan

participants can oversee the recommended allocations and rebalancing

of their plan accounts by receiving

extensive disclosures regarding the

services performed, and fees received, by the particular service

providers and fiduciaries.

In addition, there was an exemption

granted for employee benefit plans to

purchase and sell publicly traded

index-linked debt securities issued by
20 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

Merrill Lynch & Co. Inc. or an

affiliate (Merrill Lynch). Such

securities, which are also issued by

other broker-dealers and their affiliates, have their principal amounts

guaranteed by the issuer. The issuer

typically has a high rating for longterm debt securities. Under the

exemption, the securities must be

rated in one of the three highest

generic rating categories by at least

one nationally recognized statistical

rating service. These securities are

made available by Merrill Lynch and

others in the ordinary course of their

business to plans as well as to customers that are not plans. This

exemption, and other similar exemptions under consideration will enable

plans to acquire and hold such

securities as part of a diversified

portfolio of fixed-income securities.

Therefore, the exemption allows

plans a wider range of investment

opportunities, while requiring safeguards to ensure, among other things,

that rates of return on the debt

securities are objectively determined,

and investment risks are adequately

disclosed in advance.

Several significant

individual exemptions were

also granted to major

financial institutions

(e.g. Morgan Guaranty Trust Company of New York, et. al.) to permit

purchases of securities by such

institutions’ asset management

affiliates, on behalf of employee

benefit plans for which such asset

management affiliates are fiduciaries,

from underwriting or selling syndicates where the institutions’ brokerdealer affiliates participate as managers or syndicate members. These

exemptions will enable plans, who

hire financial institutions to act as

investment managers for their assets,

to acquire securities in initial public

offerings (IPOs), where such institutions have affiliates participating in

the IPOs as managing underwriters or

members, and thereby take advantage

of the often lower IPO prices than are

obtainable later in the secondary

market.

The Agency granted several individual exemptions to permit the

receipt by plans of common stock,

policy credits, cash or other consideration as eligible policyholders of a

mutual insurance company, in exchange for their policyholders’

membership interest under the terms

of a demutualization plan.

A significant individual exemption

was granted to the Columbia Energy

Group (Columbia) to permit

Columbia’s subsidiary insurance

company to reinsure the risks covered

by a long-term disability policy sold

to Columbia’s Long-Term Disability

Plan (the plan) by a third-party

insurer. The case differed from prior

individual exemptions granted

involving reinsurance because the

subsidiary earns more than 50 percent

of its annual premiums from sales of

insurance or reinsurance with the

Columbia corporate group. The

Department granted this exemption

when the applicant offered additional

safeguards for protecting the plan.

First, an independent fiduciary was

retained to determine that the arrangement was appropriate for the

plan and in the plan’s best interest. In

addition, the independent fiduciary

confirmed that there would be an

immediate benefit to the plan participants resulting from the transactions

because, among other things, benefits

under the policy would be increased

as a result of the arrangement.

The Department continued to grant

individual exemptions to enable

certain large employee benefit plans

(i.e., $50 million or more in total

assets) to acquire and hold so-called

“synthetic” guaranteed investment

contracts (GICs)). These exemptions

permit sales and transfers of plan

assets pursuant to the terms of both

benefit-responsive and non-benefit

responsive synthetic GICs. These

arrangements are established under

contracts that are entered into by an

independent plan fiduciary with an

entity, usually an insurance company

or an affiliate, that guarantees certain

benefit and/or contractholder payments to the plan. Plan fiduciaries

frequently use synthetic GICs as

funding vehicles for their fixed

income or stable value investment

options, typically, for defined contribution plans. A synthetic GIC allows

plan participants to withdraw funds,

transfer funds, or borrow funds

without the exposure to interest rate

risk. Synthetic GICs provide plans

with a fixed-income investment

product, similar to direct investment

in fixed-income securities, plus a

guarantee that ensures that benefit

payments are made to plan participants at book value. These exemptions require that appropriate safeguards be in place to ensure, among

other things, objective valuations of

assets underlying the contracts,

proper disclosure of essential contract

features and fees, and reasonable

termination provisions that do not

penalize plan investors.
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 21

Overview of

Demutualizations

Demutualization of an insurance

company provides a number of

benefits to both the insurer and plan

policyholders. For the insurer,

demutualization provides access to

new sources of capital that will help

sustain the insurer’s financial

strength, increase its ability to

conduct its business efficiently and

improve the insurer’s competitive

position in the insurance industry. If

the insurer achieves a favorable

financial performance, affected plan

policyholders who become shareholders will have the opportunity to share

in the financial performance of the

insurer through dividends and appreciation in the value of their shares. In

addition, as a stock company, the

insurer’s stock distributed pursuant to

the demutualization generally will be

traded on a national securities market.

Therefore, a plan’s holdings of stock

received in the demutualization can

be sold, unlike a policyholder’s

membership interests and rights to

surplus of a mutual insurer that are

not transferable and have no value

independent of the insurance policies

to which they are attributable. Further, while demutualization provides

an opportunity for plan policyholders

to share in the benefits of the

insurer’s continued economic health,

it will not, in any way, change

premiums or reduce policy benefits,

values, guarantees, or other policy

obligations of the insurer to its

policyholders.

Each insurer’s plan of

demutualization is implemented in

accordance with stringent procedural

and substantive safeguards that are

imposed under applicable state law

and supervised by the state’s insurance commissioner or superintendent.

Because of the extensive protections

afforded to plans under state laws, no

ongoing involvement by the Department is required to safeguard the

interest of a plan policyholder.

Moreover, after receiving full and

complete disclosure from the insurer,

an independent plan fiduciary has an

opportunity to determine whether to

vote to approve the terms for the plan

of demutualization and is solely

responsible for any decisions that

may be permitted thereunder regarding the form of consideration to be

received.

See Appendix B for a listing of the

Exemptions handled by the Agency in

2000.
22 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

ERISA Advisory Council

In 2000, the ERISA Advisory Council had three major working groups

that addressed the following topics:

The Working Group on Phased

Retirement, The Working Group on

Long-Term Care and The Working

Group on Benefit Continuity After

Organizational Restructuring. The

following is a synopsis of the

Council’s final recommendations.

Note: The views of the Advisory

Council’s working groups are the

views of the members and do not

necessarily reflect those of the

Department.

The Working Group on Phased

Retirement made the following

recommendations:

• Change or clarify the pension law

or regulations to prevent a pension

from being reduced if pay decreases due to phased retirement;

and, until this recommendation can

be implemented, notify employees

if a change in their employment

status may reduce their pension.

• Support the Phased Retirement Act

introduced by Rep. Earl Pomeroy

and Sen. Charles Grassley, which

will allow pension payments to be

made, even while employed, after

the earlier of: normal retirement

age, age 59-1/2 or 30 years of

service. In addition, with respect to

this bill:

Allow employers to adopt these new

rules on a temporary basis, i.e., with a

sunset provision.

Clarify that benefits paid after 30

years of service (but before age 591

/2)

are not subject to the 10 percent

additional tax on premature

distributions.

Clarify that the bill facilitates early

access in the event of phased retirement while restricting the options that

might allow voluntary access to funds

prior to actual retirement.

• Alleviate the health care access

concerns of older workers by:

Allowing individuals to purchase

Medicare coverage between age 55

and age 65 at a rate that is competitive with group insurance policies that

provide similar benefits, but without

consideration of insurability and

pre-existing condition requirements

Extending the total COBRA period

for employees losing coverage after

age 55 to the lesser of the period of

time to Medicare eligibility, or to the

period of coverage with the employer

prior to the COBRA period.

• Permit a facts and circumstances

test for phased retirement provisions in a pension plan, as an

alternative to passing the

mechanical nondiscrimination test.

• Develop safe harbors and/or

special rules addressed to phased

retirement programs that

accommodate their special

characteristics.

• The Labor Secretary should

collaborate with the Equal

Employment Opportunity Commission to review the application

of the Age Discrimination in

Employment Act in the context of

phased retirement, in order to

establish acceptable guidance

regarding what is required for an

acceptable phased retirement

program. If necessary, also

recommend appropriate statutory

amendments.

• The Labor Secretary should

organize a task force with other

appropriate government agencies

and the general public to investigate and study potential ERISA

and related rules that may be

obstacles to private sector employers in designing deferred retirement options plans or similar

arrangements that protect the value

of pensions when employees work

past their early retirement ages.

The Working Group on Long-Term

Care made the following

recommendations:

• Convene a White House conference to develop a national policy

on long-term care that includes a

comprehensive strategy that

addresses all dimensions of the

problem.

• The President should issue an

executive order to establish a

Long-Term Care Interagency

Coordinating Council that includes

representatives from the departments of Labor, Health and Human

Services, Treasury, the Office of

Personnel Management, the

Veterans’ Administration and the

Social Security Administration.

The council should have the

responsibility to coordinate the
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 23

development and implementation

of long-term care policy initiatives

consistent with the structuring of a

national policy on long-term care.

• Consider the following tax policy

initiatives, as deemed appropriate

by the Secretary and other policy

leader in the Executive Branch:

Improve the deduction of long-term

care insurance premiums for qualified

plans to an above-the-line deduction

so premium dollars are not subject to

a percentage of income.

Make the above-the-line deduction

only available for policies that

meet the rate stabilization and other

consumer protection standards.

Permit long-term care premiums for

qualified plans to be paid through IRS

Sec. 125 plans.

Provide a tax credit for voluntary

caregivers who provide long-term

care services to individuals which

have at least two limitations in

activities of daily living or who have

severe cognitive impairment.

Encourage state governments, that

have not already done so, to provide

similar incentives in their tax codes

for purchasing long-term care

insurance.

• Develop and implement an educational program to help individual

Americans understand the potential long-term care problem, how it

affects them and the specific steps

they can take to ensure their access

to needed long-term care services.

• The Labor Department should take

the lead for providing information

to employers and workers that

would help them understand the

importance of long-term care

financing and the importance of

incorporating long-term care

financing into their retirement

security planning.

• The Office of Personnel Management should complete implementation of the long-term care program

for federal workers to purchase

long-term care insurance through

the newly established program for

federal workers in 2002.

• Encourage all states to adopt the

model regulations that have been

developed by the National Association of Insurance Commissioners

to address consumer concerns

about premium stability and

solvency in the long-term care

insurance market.

• The Department of Health and

Human Services should take the

lead in establishing a forum

wherein the process for regulating

nursing homes and other long-term

providers in the United States can

be rationalized to protect nursing

home patients, to ensure high

quality care; to optimize the use of

available regulatory resources and

to eliminate duplication in the

regulatory process.

• The Labor Department and Health

and Human Services should take

the lead in developing and implementing initiatives that will

improve the availability of needed

nurses, gerontologists, geriatricians

and nurse assistants to support

providing long-term care services

into the future.

• Consider modernizing Medicare

rules and regulations to eliminate

the requirement for a three- day

hospital stay before accessing

needed skilled nursing facility

services.

The Working Group on

Benefit Continuity

• The Department of Labor should

create, in conjunction with the IRS

and the Pension Benefit Guaranty

Corporation, guides to employee

plan issues related to restructuring,

with stakeholders’ input in drafting

these guides.

• The Department should consider

developing a legislative package

that re-examines the timing of the

disclosure requirements, such as

the 90-day requirement for the

Summary Plan Description, and

210 days for the Statement of

Material Modifications, particularly in the context of sponsor

restructuring.

• All agencies that are responsible

for enforcing ERISA should

review the policies, rules and

regulations relating to restructuring

to ensure that:

The provisions address the purchase

or sale of assets or stock; and The

Internal Revenue Code minimum

coverage rules include a specific

transition provision for retirement

plans undergoing a change in

sponsors.
24 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

• The Secretary of Labor should

consult with the Secretary of

Treasury and the Executive

Director of the Pension Benefit

Guaranty Corporation to investigate the policy considerations

associated with revising the

cafeteria plan regulations to

specifically authorize the transfer

of flexible spending accounts as

part of restructuring; expand the

current relief on the same desk rule

to include other entities, such as

partnerships and limited liability

companies; reconsider the anticutback regulations under the IRS

Code Sec. 411(d)(6) in the context

of allowing a defined benefit plan

sponsor to eliminate certain

redundant options.

• Revise the PBGC premium

policies in the event of a spin-off

of plan balances.

• Review the procedures for qualifying as a separate line of business,

when an existing plan sponsor

acquires an entity that is a separate

business prior to acquisition.

ERISA Advisory Council

2000 Members

Accounting

Rebecca J. Miller

Partner, McGladrey & Pullen, LLP

Investment Management

Catherine L. Heron

Assistant General Counsel, Capital

Research and Management Company

Actuarial Counseling Field

*Michael J. Gulotta

President and CEO, Actuarial

Sciences Associates, Inc.

Employee Organizations

(including one representative from

a multi-employer plan)

James S. Ray

Law Offices of James S. Ray

Judith F. Mazo

Senior Vice President/Director of

Research

The Segal Company

Employer Organizations

(including one representative from

a multi-employer plan)

Janie Greenwood Harris

Trust Counsel, Firstar Corporation

General Public

(including one retiree)

Evelyn F. Adams

International Project Manager,

IBM Global Services

Richard (Dick) Tani

Retired from William M. Mercer

Patrick N. McTeague

Partner, McTeague, Higbee,

MacAdam, Case, Watson and Cohen

Investment Counsel

Eddie C. Brown

President, Brown Capital

Management

Employer Organizations

(including one representative from a

mult-employer plan)

Timothy J. Mahota

General Counsel, Integral

Development

**RoseMary Abelson

Assistant Treasurer/Director of

Investments and Trust Management

Northrup Brumman Corporation

Insurance Industry Field

Michael J. Stapley

President and CEO, DeSeret Mutual

Benefit Association

Corporate Trust

Carl T. Camden

Executive Vice President, Field

Operations, Sales and Marketing,

Kelly Services Inc.

* Indicates Advisory Council chair

** Indicates Advisory Council vice

chair
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 25

Civil Cases

Herman v. Joseph Molnar, et al.

1-5-00

Troy, Mich.

The Carpenters Pension Trust Fund

was sued by the U.S. Department of

Labor for allegedly making a series of

prohibited mortgage loans from plan

assets to certain participants of the

pension plan.

According to the lawsuit, since

September 1995, plan trustees Joseph

Molnar, Melvin Stokes, Sr., H. Boyd

Harris, Kenneth Stewart, Joseph

Gambino, Jr., Anthony Michael,

Walter Mabry, Donald Stewart and

Donald Salkowski authorized AAA

Mortgage Corporation to make firstlien mortgage loans from the plan

even though the plan provisions did

not allow for such loans. In addition,

participants were allowed to pledge

their interest in their vested accrued

benefits in the plan as collateral for

the mortgage loans, even though such

pledges are expressly prohibited by

the plan. As of July 30, 1999, the

outstanding principal balances of the

alleged prohibited mortgage loans

exceeded $14.7 million.

The plan is a multi-employer, TaftHartley pension plan established as a

result of collective bargaining by the

Michigan Regional Council of

Carpenters and five employer associations. As of April 1998, the plan had

16,762 participants and assets totaling

$1,043,125,738.

The Department is seeking a court

order to require the plan and its

trustees to correct the prohibited

Appendix A

loans and to restore to the plan any

losses, including interest, that may

result from the correction.

Herman v. Donovan Benefit

Systems

1-14-00

Houston, Tex.

The U.S. Department of Labor filed a

lawsuit against Donovan Benefit

Systems, Inc. and its president and

former executive vice president for

allegedly firing two employees when

one of them questioned the administration of the company’s health plan.

Donovan Benefits Systems, Inc.

provides its clients with administrative services for the clients’ selffunded group health plans, and also

serves as the plan administrator of its

own health plan.

The Department’s lawsuit alleges that

the company and two corporate

executives, James D. Baker and

Kathleen Ross, violated the rights of

two employees. ERISA explicitly

prohibits the discharge, fine, suspension, expulsion, discipline or discrimination against any participants

or beneficiary for, among other

things, exercising their rights under a

plan.

According to the lawsuit, the Labor

Department alleges that Mara

Wisniewski and her husband Joe

Wisniewski were fired from the

company when Ms. Wisniewski

questioned company officials about

checks for medical claims issued by

the company to her health care

providers that were returned by the

bank for insufficient funds.

The Department sought to have

defendants Baker and Ross pay the

Wisniewskis back wages, with

interest; restore the lost benefits; and

to reinstate Mara Wisniewski or,

alternatively, to pay her additional

restitution in the form of advance pay.

Herman v. Riemer

1-27-00

Tauton, Mass.

David I. Riemer, president of the now

defunct Arley Corporation and trustee

of the company’s pension plan, has

restored $330,000 to the plan under a

consent judgment obtained by the

U. S. Department of Labor.

The judgment resolves a lawsuit filed

by the Labor Department against

Riemer alleging that in his position as

president of the company and sole

trustee of the pension plan, he engaged the plan in financial transactions that resulted in substantial

losses.

The lawsuit alleged that Riemer

ultimately allowed the plan to purchase hundreds of thousands of

dollars worth of Arley corporation

securities even after he was fully

aware that the company was having

financial difficulties. At the time of

these purchases, there was also no

known market for the company

securities and no independent means

for determining their fair market

value.

Arley filed for bankruptcy in 1997

and all of the company’s assets were

sold, along with the name. The

pension plan was frozen on June 13,

1997, and the Pension Benefit
26 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

Guaranty Corporation became the

plan’s trustee.

The pension fund covers 600 former

employees of Arley Corporation,

which manufactured bedding and

drapes at its Tauton, Mass., facility

and in other parts of the country.

The consent judgment permanently

prohibits Riemer from serving as a

fiduciary to any ERISA-covered plan,

and from claiming for himself or his

beneficiaries any benefits from the

Arley Corporation pension fund.

Herman v. Wiretex Manufacturing

Company, Inc.

3-14-00

Fairfield, Conn.

The U.S. Department of Labor filed a

lawsuit against Wiretex Manufacturing Company, Inc. and the company’s

top two officers alleging that they

misused the assets of the company’s

pension plan.

The lawsuit alleged that the company,

its president Robert Garofalo and its

vice president Emil Garofalo misused

a total of $642,850 in assets that

belonged to the Wiretex Manufacturing Company, Inc. pension plan. The

plan was established in 1964 to

provide retirement and death benefits

for employees of the company.

Wiretex operated a metal fabrication

business. The company’s pension

plan had 10 active participants,

including the two individual defendants, who are both trustees of the

plan. As of Aug. 30, 1999, the total

remaining assets in the plan were

$3,645.

The lawsuit alleged that from Aug.1,

1991, to the present time, the company acted as the sponsor and administrator of the pension plan, while

both Robert and Emil Garofalo

served as the plan’s trustees. The

defendants allowed the pension plan

to loan to Wiretex at least $484,800.

The loan was never repaid. The

defendants also allowed the plan to

distribute at least $158,050 in plan

assets to Robert Garofalo, in violation

of the plan’s rules.

The defendants were charged with

using the plan’s assets for their own

benefit and for failing to provide plan

participants with summary plan

descriptions, annual reports and other

information required by law.

The lawsuit seeks to have the court

permanently bar Robert and Emil

Garofalo from serving as fiduciaries

to any ERISA-covered plan; permanently bar Wiretex from acting as a

plan administrator; require that the

defendants to restore all losses they

caused the plan, with interest; and

require that the defendants undo the

prohibited transactions in which they

engaged, and to return all profits,

with interest, to the plan.

Herman v. Stetler

3-23-00

Greendale, Wis.

The U.S. Department of Labor has

settled a lawsuit with Daniel E.

Stetler, the former president of the

bankrupt Louis Allis Company to

recoup $70,867.43 for participants of

the company-sponsored, non-union

401(k) plans. Stetler filed his own

petition for personal bankruptcy in

January.

The Department’s settlement permanently barred Stetler from holding a

fiduciary position with any employee

benefit plan covered under ERISA

and required him to restore the salary

deferrals to the plans by a transfer of

money from his own 401(k) account

into the plans.

The Louis Allis Company established

its union and non-union employee

401(k) plans in 1994, and for approximately a two-month period in

1998, the company allegedly failed to

remit voluntary employee contributions withheld through salary deferral

to the plans’ investment accounts.

On Dec. 21, 1999, Larry Lefoldt of

Ridgeland, Miss., was named as the

independent fiduciary to the plans.

He is arranging for the orderly

distribution of plan assets to participants and for the total liquidation and

termination of the plans. Lefoldt has

ascertained that the combined assets

of the plans as of Dec. 31, 1999, total

approximately $9.7 million.

Herman v. McQuatters

3-31-00

Liverpool, N.Y.

The U.S. Department of Labor sued

the New York Equipment Dealers

Association and the trustees of its

health plan for allegedly causing the

plan to overpay $906,621 for administrative services.

Named as defendants were plan

administrator Richard McQuatters;

trustees William Bebout, Michael

Celentano, Rockyn Giroux and

Stewart Hansen; and the New York

Equipment Dealers Association, Inc.
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 27

The Association is a non-profit

organization covering some 325

retail, wholesale and distribution

businesses that sell and services farm,

industrial, construction and outdoor

power equipment. The trust was

created in 1990 to provide medical,

dental, life insurance and disability

benefits to approximately 1,400

participants. The trust was funded

through either

a self-funded program or insurance

contracts.

According to the lawsuit, the defendants violated ERISA by:

• Entering into a contract with the

association to provide administrative services to the trust based

solely on the recommendation of

defendant McQuatters without

soliciting competitive bids;

• Renewing the administrative

services contract with the association from the period 1991-97

without soliciting bids from other

service providers or reviewing the

appropriateness of the fees charged

to the trust;

• Overcharging the trust $906,621

for services, according to a review

of the trust that was conducted by

the accounting firm Ghezzi and

Mitchell; and

• Failing to obtain reimbursement of

the overcharges after receiving the

accountant’s report.

McQuatters is individually charged

with self-dealing due to an arrangement under which he would receive

five percent of any profits of the

association, which included payments

from the trust for services rendered.

The lawsuit seeks a court order to

require that the trustees and administrator restore any losses to the trust,

with interest or opportunity costs, and

to require the association to undo any

transactions prohibited by ERISA.

The Department also asks the court to

permanently bar McQuatters from

serving as a fiduciary or service

provider to any plan governed by

ERISA.

Herman v. Administrative Services

of North American, Inc.

4-2-00

Houston, Tex.

The U.S. Department of Labor

obtained a consent order and judgment permanently barring Houstonbased Administrative Services of

Texas (ASO) and its parent company

Administrative Services of North

American (ASONA) from serving in

a fiduciary capacity to any employee

benefit plan governed by ERISA.

Previously, the Department restored

$737,636.19 in plan assets held by

ASONA to employers sponsoring

welfare benefit plans using ASONA’s

services. The Labor Department sued

ASO, ASONA and Mark A. Strange,

a former corporate executive, for

allegedly using plan assets to pay the

operating expenses of the two corporations. Strange also allegedly

authorized the transfer of funds from

plan trust accounts to corporate

accounts between October 1998 and

March 1999. This consent order does

not resolve the Department’s allegations against Strange.

A preliminary injunction obtained by

the Department on June 11, 1999,

froze the assets of the corporation to

prevent further depletion of plan

assets owed to client plans managed

by them.

ASONA and ASO served as thirdparty administrators to self-funded

employee welfare benefit plans

sponsored by a variety of employers.

U.S. Department of Labor v.

Current Development Corp.

4-25-00

Elmhurst, Oh.

Current Development Corporation

has been ordered by a Cincinnati

administrative law judge to pay the

Labor Department $53,062 in penalties for disregarding a settlement

agreement correcting reporting and

disclosure violations under the

Federal pension law.

The decision and order stems from a

motion filed by the Department on

Feb. 16, 1999, alleging that the

corporation failed to timely file its

1995-1996 participant account

statements and Form 5500 Annual

Reports, its 1992-1996 Form 5500 C/

Rs, and to timely pay $15,000 in civil

penalties that stemmed from a

settlement of these charges.

In rendering the decision, the administrative law judge originally fined the

corporation $2,311,300 in penalties to

cover the corporation’s initial failure

to file timely reports, subsequent

breaches stemming from disregarding

the settlement agreement and failing

to pay the civil penalties. The judge

reduced the penalty to $53,062,
28 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

provided the penalty was paid within

30 days following the Feb. 22 decision and order.

Herman v. Wachovia National

Bank

6-6-00

Birmingham, Ala.

Wachovia National Bank, N.A., and

the former president and chief

executive officer of Charter Medical

Corp. agreed to restore $42 million to

the corporation’s employee stock

ownership plan (ESOP) under a

settlement agreement with the U.S.

Department of Labor. Wachovia

entered into the agreement as the

successor to South Carolina National

Bank (SCNB).

Under the settlement, Wachovia will

pay $30 million to the ESOP, now

known as the Magellan Health

Services, Inc. ESOP. William A.

Fickling, Jr., the former president and

C.E.O. of Charter Medical, also will

pay another $12 million to the plan.

Money restored to the plan will be

allocated to past and present participants and beneficiaries on a pro-rata

basis.

Under a previous Nov. 13, 1996,

consent order, SCNB was permanently removed from its position with

the ESOP and replaced with an

independent trustee. Charter Corporation emerged from reorganization

bankruptcy in July 1992.

The ESOP was created in January

1988 and covered approximately

13,000 participants as of 1990.

The Labor Department lawsuit

alleged that SCNB caused the ESOP

to overpay for 11,853,569 shares of

stock in Charter Medical Corporation

from William A. Fickling, Jr., and

related parties, including Neva L.

Fickling, William A. Fickling III,

Jane F. Skinner, Julia C. Fickling,

Roy H. Fickling, Claudia F. Fickling,

Katherine M. Wright, Virginia M.

Rabun, W&J Capital Co. Ltd., J&R

Capital Co. Ltd. and various trusts.

SCNB, the ESOP trustee, allegedly

breached its fiduciary obligation by

relying on an unreliable valuation

prepared by Interstate/Johnson Lane

Corporation.

Herman v. Fred Bovee and State

Wide Metal Recycling, Inc.

6-7-00

Des Moines, Iowa

The U.S. Department of Labor filed a

lawsuit against Iowa businessman

Fred Bovee for failing to forward

employees’ salary deductions to the

Savings Incentive Match (SIMPLE)

plan of State Wide Metal Recycling,

Inc. Consequently, the plan allegedly

suffered losses of $2,155.76, plus

interest.

State Wide established SIMPLE in

March 1996. There were five participants, including Bovee, and assets of

$1,804.86 as of Dec. 31, 1998. The

company, in the process of being

sold, engaged in the reclamation and

sale of scrap metal with Bovee as its

president, director and corporate

agent. The Department seeks to have

Bovee repay to the plan all losses,

including lost earnings and postjudgment interest, attributed to his

fiduciary breaches under ERISA;

have him removed from his position

with the plan and permanently barred

from serving as a fiduciary to any

ERISA plan; and to have an independent fiduciary appointed to administer

and terminate the plan.

Herman v. Capital Consultants,

LLC

9-21-00

Portland, Ore.

The U. S. Department of Labor

secured a stipulated order to appoint

a permanent receiver to take account

of the company’s assets and to take

steps to protect the interests of the

ERISA plan investors and other

investors; to freeze the assets of

Capital Consultants, LLC, of Portland, Ore.; and to preliminarily bar

the firm and its principals from doing

business with any plan governed by

ERISA.

The order partially resolves a lawsuit

filed by the Department against

Capital Consultants and its principals

Jeffery L. Grayson and his son,

Barclay Grayson. The lawsuit

alleged that the defendants imprudently invested $150 million of the

assets of its employee benefit plan

clients in a series of imprudent loans

with consumer and automobile loan

servicing corporations, causing the

plans to lose more than $100 million.

Capital Consultants, a registered

investment advisor with the Securities

and Exchange Commission provided

investment services to more than 60

primarily union-sponsored pension,

health and welfare plan clients

governed by ERISA.
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 29

According to the lawsuit, Jeffrey

Grayson, the principal owner and

chief executive officer of Capital

Consultants, and his son Barclay

Grayson, the firm’s president:

• Used plan assets to take a series of

imprudent loans from 1995

through 1998 to Wilshire Credit

Corporation, an Oregon S-Corporation that acquired and serviced

performing and non-performing

consumer loans;

• Continued to make loans to

Wilshire Credit despite evidence

that the plans’ investment with the

firm had declined substantially in

value, thereby placing additional

plan assets at risk;

• Imprudently loaned plan and other

client assets to Sterling Capital,

LLC; Oxbow Capital Partners;

LLC, Brooks Financial, LLC; and

Beacon Financial Group, LLC to

facilitate paper sales of all or a

portion of the Wilshire loan at an

inflated price, thereby concealing

losses suffered by the plans on the

original investment; and

• Charged the plans excessive fees

for investment management

services by basing the fees on a

percentage of the full amount of

the Wilhsire credit loans even

though the plans’ investment had

declined in value.

Herman v. Time Warner

11-17-00

New York, N.Y.

Time Warner has agreed to pay up to

$5.5 million to hundreds of employees wrongly denied coverage by Time

Inc.’s retirement and health benefits

plans. The settlement resolves a

lawsuit filed by the Labor Department

on Oct. 26, 1998, against the plans’

fiduciaries — Time Warner and the

administrative committee that manages Time Inc.’s plans — for

misclassifying workers as independent contractors or temporary employees and, therefore, denying them

coverage by the companies’ pension

and health plans.

According to the lawsuit, Time Inc.

and its subsidiaries regularly failed to

identify and include all employees

who were eligible to participate in the

plans. Workers were not identified or

informed of their rights to participate

in the plans, and therefore these

employees were prevented from

obtaining retirement and healthrelated benefits to which they were

otherwise entitled.

Under the settlement, Time Warner

will establish three funds to which the

money will be deposited, which

include: 1) Settlement Fund A for

$2.5 million, for workers who were

classified as temporary employees; 2)

Settlement Fund B for $2.5 million,

for workers who were classified as

independent contractors, and 3)

Settlement Fund C for $500,000, for

misclassified temporary employees or

independent contractors with uninsured and unreimbursed medical

expenses exceeding $10,000 per year

that would have been covered by

Time Inc.’s medical plan.

Herman v. Stricker C. Mays

Herman v. Emilio A. Antonetti

3-27-00

Pensacola, Fla.

Two Pensacola, Fla., doctors agreed

to pay $190,000 to the profit sharing

plan of the medical practice they

owned and were permanently barred

from serving as trustees to any

ERISA-covered employee benefits

plan, under separate settlement

agreements reached with the U.S.

Department of Labor. The money

represents losses resulting from

prohibited loans made by the pair to a

local sports partnership and represents losses to the plan’s participants.

Drs. Stricker C. Mays and Emilio A.

Antonetti, who were equal partners in

the practice and also trustees of the

plan, agreed to restore the losses by

making cash payments or waiving

their right to benefits under the plan

and to re-distribute the money to the

accounts of the plan participants,

excluding themselves. The plan had

13 participants and $668,548 in assets

as of Dec. 31, 1997.

The Department also simultaneously

sued the defendants, their practice

and the plan for allegedly loaning

$117,761 from their participants’

individual plan accounts and $2,239

from the plan’s general assets to

Pensacola Soccer Complex, Ltd., a

limited partnership formed by

Hartwig, Matteson & Mays, Inc. in

which Mays was a limited partner and

officer.

The lawsuit alleged that Mays met

with plan participants in April 1995,

advising them that their investments

were not doing well and that the plan
30 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

had been changed to allow them to

direct their investments. He then

allegedly met with them one-on-one,

eventually persuading 12 of the

participants to sign a form indicating

the amount they wanted to invest in

the soccer partnership.

The soccer complex, now defunct,

was under construction in the fall of

1995 when two hurricanes swept the

area, causing damages between

$500,000 and $600,000. The soccer

partnership did not have adequate

insurance to cover the losses.

Herman v. Exterior Systems

Unlimited, et al

3-27-00

Nashville, Tenn.

The U.S. Department of Labor

recovered $156,919 in unpaid employee contributions and approximately $100,000 in lost earnings in a

settlement with Exterior Systems

Unlimited, Inc. (ESU), a bankrupt

Nashville, Tenn. firm. Named as

defendants in the settlement agreement were ESU, its wholly-owned

subsidiary P&E Electric Co., Inc. and

Michael F. Perkerson, who was chief

executive officer and chairman of the

board of both companies, as well as

the plan’s trustee and an officer of

another wholly-owned subsidiary.

Perkerson — who was permanently

barred from serving as a fiduciary to

an ERISA-covered employee benefit

plan — agreed to permit $20,000 of

his individual plan accounts to be

offset for part of the losses and

reallocated to remaining participants

in the plan. The sum of $100,000 has

already been repaid to the plan by the

defendants’ fiduciary liability insurance company, Federal Insurance

Company.

The lawsuit alleged that employee

contributions withheld from P&E and

ESU payrolls from October 1996 to

July 1997 were not forwarded to the

plan, but were used to finance corporate operations of ESU and the

subsidiaries.

Under the settlement, the plan will

also recoup $69,000 from its priority

claim against defendants ESU and

P&E in U.S. Bankruptcy Court in

Nashville, as well as a percentage

of $136,900 from two other unsecured claims, also filed in bankruptcy

court. The total recovery for the

plan’s participants is expected to be

approximately $260,000.

Herman v. The Center for Mental

Health, Inc.

6-13-00

Washington, D.C.

The Center for Mental Health, Inc.

agreed to restore $226,932 in mandatory contributions, plus interest, owed

to two pension plans sponsored by the

Center, as part of a consent order

obtained by the U.S. Department of

Labor.

The Department’s lawsuit alleged that

the Center violated ERISA by failing

to collect

the amount that was owed to the plans

and did not take steps to collect the

outstanding contributions.

The Center is a non-profit organization that provides mental health

services to District of Columbia

residents. The two pension plans,

The D.C. Institute of Mental Hygiene

Annuity Plan and the Money Purchase Plan, covered as many as 48

employees and had assets of

$159,000 as of December 1998. The

Center was required to contribute

three percent of each employee’s

salary to the plans.

Herman v. Hyde

6-21-00

San Francisco, Calif.

The U.S. Department of Labor

obtained consent judgments requiring

John B. Hayes and other officials of

Interstate Services, Inc. and Thordyke

International Inc. in Novato, Calif., to

pay, collectively, $1.4 million in

restitution for diverting health benefit

assets of the ERISA Advantage

program to themselves and others

who were affiliated with the health

care scheme.

The ERISA Advantage Self-Insured

Retention/Single Employer Trust

Program was a nationwide multiple

employer welfare arrangement

(MEWA) created by Hyde in 1994.

Hyde set up ERISA Advantage

despite a 1997 court order that barred

him from serving a health plan for the

International Brotherhood of Trade

Union Local 122 Trust. ERISA

Advantage was marketed through a

network of consultants, insurance

agents and related professionals,

employer leasing companies, health

provider associations and other

organizations.

The judgments resolved a lawsuit

filed in August 1998 that, among

other things, alleged that the defen-
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 31

dants commingled the assets of

individual health trusts in direct

contradiction of a commitment to

maintain a separate trust to fund

promised benefits of enrolled employers; diverted an excessive amount

of plan funds to cover administrative

and marketing fees and commissions;

and failed to timely pay or denied

claims for benefits under the program.

The judgments required that an

independent fiduciary be appointed to

recover assets, pay claims and to

terminate the program and liquidate

the corporations. Under the judgments, Hyde, his daughter Mary

King and Kenneth Ruff also were

ordered to make restitution, and all

individual bank accounts that were

frozen under the preliminary injunction must be transferred to the

independent fiduciary. Hyde also was

permanently barred from doing

business with any plan governed

under ERISA.

Herman v. Buckeye

7-14-00

Columbus, Ohio

The U.S. Department of Labor filed a

petition for civil contempt and

secured a court order requiring

Myron G. Place, of Buckeye Technical Services, Inc. of Columbus, Ohio,

to pay more than $19,000 to the

company’s 401(k) plan. He had

failed to comply with provisions of an

August 1999 consent order and

judgment with the Department that

required him to restore the plan

money.

The 1999 consent order and judgment

required Place, a trustee, to repay

$19,675 to the Buckeye Technical

Services, Inc. Retirement Plan. It

resulted from a departmental lawsuit

that alleged Place and former trustee

William R. Kugel, Jr., withheld

voluntary plan contributions from

employees’ paychecks from October

1992 to June 1995, but failed to

deposit them into the employees’ plan

accounts.

Buckeye Technical Services had filed

for Chapter 11 Bankruptcy at the time

of the consent order and judgment,

which stipulated that Place be held

liable for the amount of $19,675 if

reorganization of the company did not

occur. When the bankruptcy case was

dismissed, the Department’s repeated

attempts to work out a payment

schedule with Place for the outstanding debt were unsuccessful.

The Department then proceeded to

enforce the judgment by filing a

petition for civil contempt against

Place, which led to the July 14 court

order. The court stipulates that Place

is liable for $19,675, plus interest,

from Sept. 21, 1999, forward until the

debt is paid in full.

Herman v. Sita et al

8-15-00

Jersey City, N. J.

The U.S. Department of Labor filed a

lawsuit against the administrator of

the four plans that provided retirement, health and vacation benefits to

employees of the Hudson County

District Council; and trustees Stephen

Crevani, Salvatore DiBlassi, Frank

DiTomasso, Ralph LaRocca,

Salvatore Reo, Cosmo Sancia and

Nick Sita; and Local Union 325 of

the Laborers’ International Union of

North America. The lawsuit alleged

that from 1994 until his resignation as

the funds’ administrator in 1999, Sita

engaged in various actions that

violated ERISA. These actions

included, among other things, using

plan funds to partially pay salaries of

business agents to the Council and the

Local 325, while failing to determine

the value of the services provided to

the plan; and using the pension and

annuity funds to pay a disproportionate amount of common expenses,

such as office rent and supplies.

The lawsuit also alleged that during

the period 1994-1999, the plan

trustees failed to undertake reasonable efforts to oversee the expenditures of the funds’ assets being

administered by Sita; failed to ensure

that Sita complied with the guidance

for expenditures adopted by all the

funds; and failed to oversee the

administration of the annuity funds’

loan program.

Herman v. Asahi Service, Inc.

8-15-00

Chicago, Ill.

The U.S. Department of Labor

obtained a judgment that required M.

Larry Lefoldt, a successor trustee, to

oversee the termination of the profitsharing plan of Asahi, Inc., of Des

Plaines, Ill., and to distribute the

plan’s assets to participants.

The company’s profit-sharing plan

was created in 1992 by Asahi Services, Inc., but became an orphan

plan in July 1998 upon the death of
32 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

its sole trustee Noboru Tanaka. The

Labor Department sued Asahi in May

2000 for violating ERISA by leaving

the plan without a trustee, failing to

appoint a successor trustee to administer the plan and failing to terminate

the plan and distribute individual

account balances to participants.

Asahi, Inc. was a company that

developed film and serviced cameras,

and was involuntarily dissolved by

the state of Illinois in May 1999. As

of September 1997, the plan covered

17 participants and had assets of

$117,401.57.

Criminal Cases

U. S. v. Matthews, Jr.

11-22-00

Laude, Mo.

R. Taylor Matthews, Jr., pled guilty to

the theft of more than one million

dollars of

401(k) pension rollover funds after

his 1988 purchase of Woodson

Products Company, Inc.

Matthews formed Woodson Acquisition Company, LLC, a local machine

metal parts company, in 1998 to

purchase Woodson Products Company Inc. The purchase was completed on Sept. 1, 1998 and the

company became known as Woodson

Products Company, LLC. Matthews

then established a new 401(k) pension

plan.

Approximately 40 employees elected

to roll over their 401(k) pension plans

from the old Woodson 401(k) pension

plan to the new one. At the end of

June 1999, the old 401(k) plan sent

Woodson Products Company, LLC, a

check for $1,043,513.36. A second

check for $4,402.67 was also sent to

the new 401(k) plan, representing

interest previously earned on the

rollover 401(k) pension plan funds.

Matthews failed to deposit either

check into the new plan’s account,

diverting the funds to pay the debts of

other companies he owned, the

operating expenses of Woodson

Products and his own personal

expenses.

Matthews returned the money to the

Woodson Products Company LLC

401(k) plan on

July 12, 2000. In doing so, he repaid

approximately $1.2 million, which

included the principal amount stolen,

plus the greater of 9 percent or what

each employee would have earned in

his chosen investments for the year

during which the funds were misappropriated.

U.S. v. Kugel

2-4-00

Columbus, Ohio

William Robert Kugel, an executive

of Buckeye Technical Services, Inc.,

in Columbus, Ohio, was sentenced to

two years of probation and 80 hours

of community service after pleading

guilty on Nov. 18, 1999, to one count

of embezzling $3,241 from the

company’s 401(k) pension plan.

Kugel converted the pension funds to

his own use in May and June of 1994,

in violation of ERISA. PWBA

conducted the investigation of the

case, which was prosecuted by the U.

S. Attorney’s Office.

U.S. v. Gibson

1-31-00

Webster, Tex.

David Gibson, the owner of Reliance

Healthcare Services, Inc., in Webster,

Tex., was indicted for misappropriating $2,700 in employee contributions

owed to the company’s health plan.

Reliance Healthcare Services is a

defunct home health care agency that

provided home health care services to

local clients, through a health plan

governed by ERISA. David Gibson

was charged with misappropriating

the employees’ contributions to the

health plan from July through September 1998 by retaining the funds in

the corporate checking account and

using the money to operate the

business. At the time of the improper

act, Gibson was responsible for

withholding employee contributions

and forwarding those contributions to

the insurance provider in the form of

premium payments. The case was

investigated by PWBA and the Harris

County District Attorney’s Office in

Webster, Tex.

U.S. v. Huppe

1-27-00

Massena, N.Y.

Canadian businessman Allan Huppe

was sentenced to serve three years in

jail, followed by an additional three

years of supervised release for fraud

and embezzlement from the pension

fund of the Highland Nursing Home

in Massena, N.Y.

Huppe was found guilty of two

counts of wire fraud and one count of

embezzlement from the nursing home
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 33

retirement plan, following an eightday jury trial. He was ordered to pay

$750,000 in restitution.

The original indictment charged that

Huppe used money deposited from

the retirement plan for his personal

use. Huppe assured a retirement plan

trustee that he would purchase and

sell financial instruments at no risk to

the plan, and repay the plan out of

trading profits. He then fraudulently

transferred plan assets to banks in

Canada, Nigeria, Japan and Bermuda.

The indictment further charged that

on repeated occasions Huppe provided written confirmation to the

retirement plan indicating that deposit

balances at Navy Street Bancorp,

which he owned, were in excess of

$750,000, when in fact the funds had

been disbursed. The case was jointly

investigated by the FBI and PWBA.

U.S. v. Fresenius Medical Care

North America

1-19-00

Boston, Mass.

Fresenius Medical Care North

America, the world’s largest provider

of kidney dialysis products and

services, has agreed to pay the United

States $486 million to resolve an

extensive investigation of health care

fraud at National Medical Care, Inc.

(NMC), Fresenius’s kidney dialysis

subsidiary.

Three NMC subsidiaries have pled

guilty to three separate conspiracies

and agreed to pay $101 million in

criminal fines. Fresenius has also

agreed to pay $385 million to resolve

related civil claims, which were

brought to the Federal government’s

attention under the whistle blower

provisions of the False Claims Act.

The three NMC subsidiaries were

charged with three separate conspiracies in a criminal information filed by

the U.S. District Court in Boston,

Mass. Homecare, Inc. was charged

with conspiring from May 1988 to

June 1996 to defraud the U.S. in

connection with claims submitted to

Medicare for intradialytic parenteral

nutrition, a nutritional therapy

provided to patients during their

dialysis treatments. LifeChem, Inc.,

NMC’s blood testing laboratory, was

charged with conspiring from January

1991 to June 1997 to defraud the U.S.

by obtaining payments for hundreds

of thousands of false, fictitious and

fraudulent blood testing claims.

NMC Medical Products, Inc, NMC’s

dialysis products distribution subsidiary, was charged with conspiring

from May 1987 to July 1996 to

violate the Medicare Anti-Kickback

Act, by means of payments, discounts

and other inducements provided to

dialysis facilities to obtain their

clinical blood testing for business for

LifeChem.

The civil settlements compensate the

United States for damages for five

Federal government health insurance

programs — Medicare; Railroad

Medicare; Tricare, which is a Department of Defense program for retired

military, their dependants and the

dependants of active duty miliary

personnel; the Veterans Administration health care system and the

Federal Employees Health Benefits

Program, and for damages to state

Medicaid programs.

The investigation was conducted by

special agents and investigators of

the Office of the Inspector General

(OIG) for the U.S. Department of

Health and Human Services (HHS);

the FBI; the Defense Criminal

Investigative Service and PWBA,

with support of auditors from the

Office of Audit at OIG; HHS; and

with assistance from the Office of the

Inspector General in the Office of

Personnel Management.

U. S. v. Weinlein

2-18-00

Albany, N.Y.

Laurie Weinlein, the former president

of American Payroll Network, Inc.

(APN), a now defunct employee

leasing firm, was sentenced to 63

months imprisonment and five years

probation after being convicted of

bank fraud and criminal violations

under ERISA. Weinlein was convicted of embezzling approximately

$300,000 from the American Payroll

Network, Inc. Point of Service

Health Plan, and of defrauding

Marine Midland Bank of approximately $1 million.

Weinlein was ordered by the court to

make restitution of approximately $2

million, including nearly $250,000 to

cover unpaid medical claims and

payments to a third-party administrator and $1,019,019 in wages lost to

employees whose paychecks bounced

due to the defendant’s bank fraud

scheme.

APN was once one of the largest

employee leasing firms in the New

York region, handling the payrolls of

4,000 workers who were employed
34 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

by 200 companies. In May 1994,

APN failed to provide the necessary

funding to pay medical and hospitalization claims. Weinlein converted

more than $300,000 in insurance

premiums collected from the participants for her own use.

The case was jointly investigated by

the Albany Office of the FBI and the

U.S. Attorney’s Office in New York

and PWBA.

U.S. v. Selman

4-3-00

Roanoke, Va.

Joe Bob Selman and Eleanor J.

Selman were sentenced, respectively,

to 41 months and 40 months in prison

after pleading guilty to various

charges that stemmed from embezzling funds from the health benefit

plans of Duke Benefit Services

(DBSI). DBSI was a company that

administered health care benefit plans

for several client companies covering

2,400 participants. Elenor Selman

also pled guilty to a scheme to

defraud several banks involved in a

check-kiting scheme, which she

executed while on bond pending trial

on the fraud charges.

Joe Selman was ordered to restore

approximately $2 million to the plan

participants impacted by the fraud

and embezzlement. Eleanor Selman’s

sentence included time for additional

crimes she committed of bank fraud,

stemming from the check kiting

scheme. The court also ordered

Eleanor Selman to pay restitution of

approximately $1,479,550 to the

participants and beneficiaries of the

fraud scheme. The case was investigated by PWBA, the U.S. Postal

Service and the Virginia State Police.

U.S. v. Roach et al

4-14-00

Boston, Mass.

Three men were indicted on charges

of engaging in Federal racketeering,

conspiracy, pension fund kickback

schemes and money laundering that

stemmed from almost $1 million

dollars in commission kickbacks paid

to two trustees of Chicago-based

labor union pension funds. Named as

defendants were Christopher P. Roach

and Richard S. Tringale, who were

charged with conspiracy to violate the

Racketeer Influenced and Corrupt

Organizations Act and with paying

kickbacks to trustees of employee

benefits plans. William V. Close, a

former trustee of the International

Brotherhood of Teamsters’ Local 710

plan and the Automobile Mechanics

Union Local 701, was charged with

receiving kickbacks and with money

laundering.

According to the indictments, Roach

and Triangle made promises and

threats to investment advisers that the

success of the pension fund business

for two local unions would be dependent on whether the investment

advisors agreed to funnel the commissions through a Detroit-based

brokerage firm that Roach and

Triangle controlled called East/West

Institutional Services, Inc. The two

defendants contracted with clearing

brokers to pay East/West commissions generated by investment trades

of labor union pension plan assets.

The indictments also alleged that

Roach and Triangle paid almost $1

million dollars in kickbacks to two

union pension fund trustees, one of

whom was Close. The second

trustee, Robert J. Baker, died in 1997.

The indictment alleged that Close and

Baker influenced and voted on the

selection of investment advisors to

the Local 710 and 701 pension funds.

Consequently, more than $3 million

in commissions were transferred from

bank accounts in the United States to

the Cayman National Bank in the

Cayman Islands, and then distributed

to accounts in various names for the

benefit of Baker, Close, Roach and

Triangle. Close then transferred the

funds to accounts in England and the

Isle of Man.

The racketeering conspiracy charges

against Roach and Triangle also

include allegations of international

money laundering, witness tampering, interstate and foreign travel in aid

of racketeering and violations of the

Massachusetts extortion statute.

The indictment seeks forfeiture from

Roach and Triangle of more than $7

million in commissions paid to the

racketeering enterprise, and forfeiture

from Close of more than $443,000 in

kickbacks paid to him. The case was

investigated by PWBA, the Department of Labor’s Division of Labor

Racketeering and the FBI.

U.S. v. Mett and Wiseman

6-27-00

Honolulu, Hawaii

William D. Mett and Marvin L.

Wiseman were sentenced to 63

months in jail for embezzling more
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 35

than $1 million from pension funds

that they controlled. Mett was owner

and president of Center Art GalleriesHawaii, a company that sold art to the

public. Wiseman was vice president

of Center Art. Both men served as

trustees of two pension plans created

to provide retirement benefits for

Center Art employees.

The indictment alleged that between

1990 and 1991, Mett, Wiseman and

Center Art had fraudulently sold

poster-quality reproductions of art

work at inflated prices by claiming

they were original prints.

The defendants were found guilty of

art fraud charges in 1990, and were

sentenced to jail terms and fines of

more than $2 million. While on bail

in that case, they embezzled more

than $1.6 million from the Center Art

pension plans.

Center Art became defunct in 1995,

and the company’s pension plans

obligations were assumed by the

Pension Benefit Guaranty Corporation. Mett and Wiseman were

previously found guilty of the same

embezzlement charges at a jury trial

in June 1997. The convictions were

reversed, and the defendants were

retired in March 2000 and found

guilty. The case was investigated by

PWBA, the U.S. Postal Inspection

Service and the Department of

Labor’s Office of Labor Management

Standards.

U. S. v. John Herring and Martha

Sewell Herring

6-15-00

New Orleans, La.

John Herring and Marthan Sewell

Herring were indicted on 20 felony

counts. The charges included conspiracy, theft from pension plans,

health care fraud and bankruptcy

fraud. John Herring faces up to 95

years imprisonment and Martha

Sewell Herring faces up to 105 years

imprisonment.

John and Martha Herring were the

owners and operators of Golden Age

of Monroe, Golden Age of Baton

Rouge, Golden Age of Hammond,

Golden Age of South Louisiana and

Golden Age of Shreveport, home

health care agencies that each had a

pension plan. The defendants were

charged with taking assets from the

pension plans to purchase property

under the corporate name of Southern

Style Success, Inc.

The indictment also charged that

money paid by Medicare to operate

the home health agencies was taken

by John and Martha Herring to

purchase and renovate property and

businesses that they created, owned

and operated. The indictment alleged

that $500,000 was taken from the

operation of the agencies to purchase

Golden Goose Enterprises, a day care

center in Baton Rouge.

Further, the indictment also charged

that John Herring used $1,126,315 of

funds that had been provided by

Medicare to operate the home health

agencies to fund the pension plans for

1994. Both defendants were responsible for the bankruptcy of the Golden

Age Agencies after they were forced

to pay Medicare back for years of

overpayments and disallowed costs.

The case resulted from a two-year

investigation by PWBA, the FBI and

the United States Department of

Health and Human Services.

U.S. v. Frank

7-14-00

Medford, Ore.

Jeffery J. Frank was charged in an

eight-count indictment that included

one count of embezzling from an

employee stock ownership plan, three

counts of mail fraud, two counts of

interstate transportation of stolen

property, one count of bankruptcy

fraud and one count of money

laundering.

The investigation focused on Frank’s

involvement with the establishment of

an employee stock ownership plan

(ESOP) and the purchase of the L.C.

Bliss Cattle Corporation, Inc.

L.C. Bliss owned and operated

Square Deal stores in Crescent City,

Calif., and Brookings, Ore.

The ESOP was the retirement plan for

L. C. Bliss’s employees.

After Frank established the ESOP and

became chief executive officer of the

corporation, the corporation filed for

Chapter 11 bankruptcy proceedings,

Square Deal employees lost their jobs

and the participants’ accounts in the

ESOP became worthless. The case

resulted from an investigation by

PWBA and the Internal Revenue

Service.
36 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

U. S. v. Wolfe

7-13-00

Chicago. Ill.

John J. A. “Jack” Wolfe, the former

fund administrator and chairman of

the board of trustees of the International Professional Craft and Maintenance Employees Association Trust

(IPCMEAT), was charged with nine

counts of embezzlement from an

employee benefit plan and one count

of mail fraud.

The IPCMEAT was a Chicago-based

ERISA health and welfare fund that

suffered a financial collapse in 1996.

The indictment alleged that between

approximately July 1994 through July

15, 1996, Wolfe embezzled more than

$65,000 from the plan and used the

funds for himself and another employee. The embezzled funds were

allegedly used for such personal

expenses as medical and dental

services for Wolf and his wife, bogus

overtime payments, car payments for

Wolf and another employee, a treadmill and airfare for an employee’s

child.

In addition, the indictment alleged

that Wolfe used more than $15,000 of

the stolen money to fund his unsuccessful 1995 campaign for business

manager/financial secretary of Local

134 of the International Brotherhood

of Electrical Workers. The investigation was conducted by PWBA and the

Department of Labor’s Office of the

Inspector General.

U.S. v. Dona, Jr.

9-28-00

Syracuse, N.Y.

Former Insurance agent Frederick V.

Dona, Jr., was indicted on charges of

defrauding an elderly client and

improperly serving as a paid consultant to a pension plan after being

disqualified for a criminal conviction.

Dona was also accused of mail fraud,

serving a pension plan in a prohibited

capacity and of making false statements to the Labor Department.

According to the indictment, Dona

used the mails to carry out a scheme

to defraud an elderly New York

widow Lois Thomas. He persuaded

her to loan him $60,000 from two

annuities in 1998 and induced her to

authorize additional advances to his

company, Northeastern Professional

Consultants, Ltd. through false and

fraudulent representations.

After being convicted of making false

statements in documents relating to a

pension plan in 1995 in New York,

Dona, Jr. was prohibited from acting

as an adviser or consultant to any

pension plan for 13 years. The

indictment alleged that Dona served

in a prohibited capacity as a paid

consultant to a profit sharing plan

operated by Hornestead Dairies of

Massena, N.Y., after he was disqualified from doing so. He is also

charged with making false statements

in March 2000 to an auditor from

PWBA about his work for the

Hornestead Dairies profit sharing

plan. The case resulted from an

investigation by PWBA and the FBI,

in cooperation with the New York

State Insurance Department.

U. S. v. McCarthy

9-14-00

White Plains, N. Y.

Robert J. McCarthy, former chief

operating officer of Lloyd’s Shopping

Center, Inc. in Middletown, N.Y., was

sentenced to six-and-one-half years in

prison for the theft of approximately

$2.1 million from the Lloyd’s Employees’ Pension Plan and the Lloyd’s

Employees’ 401(k) Savings Plans.

McCarthy was also ordered to make

$1.6 million in restitution to the

Pension Benefit Guaranty Corporation. McCarthy was found guilty in

October 1999 following a 10-day trial

of three counts of theft of retirement

funds, 18 counts of money laundering

and for the subsequent financial

transactions involving the proceeds of

the thefts. In addition, McCarthy was

convicted for his role in the distribution and maintenance of false earnings statements to the participants of

the 401(k) plans.

According to court documents,

McCarthy allegedly embezzled a total

of $2.1 million from Lloyd’s Pension

and 401(k) Plans. He used the stolen

retirement money to pay down a

mortgage held by Fleet Bank on

Lloyd’s property in Newburgh, to pay

Lloyd’s other corporate debts and to

purchase medical equipment in order

to start a new company he was

forming with others. McCarthy’s

thefts of pension and 401(k) funds

left both funds with almost no assets.

The case was investigated by PWBA,

the Office of the Inspector General

and the Internal Revenue Service.
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 37

Appendix B

Exemptions for Asset Allocation:

2000-39 August 10, 2000

Standard & Poor’s Advisory Services

2000-45 (amends & replaces 99-15) September 7, 2000

Salomon Smith Barney, Inc.

2000-46 September 18, 2000

Bank of Oklahoma

Exemptions for Asset-Backed Securities:

2000-19 May 4, 2000

BOSC, Inc.

2000-33 June 13, 2000

McDonald Investments Inc.

2000-41 August 22, 2000

First Tennessee Natl. Corp.

2000-55 November 13, 2000

Countrywide Securities Corp.

2000-58 November 13, 2000

Bear, Stearns & Co., et al.

EXPRO Grants for Asset-Backed Securities:

2000-05E February 12, 2000

Greenwood Trust Co.

2000-19E July 16, 2000

American Express Centurion Bank

Exemptions for Credit Facilities:

2000-10 February 29, 2000

Bankers Trust Company

2000-22 May 23, 2000

Bankers Trust Company

Exemptions for Demutualizations:

2000-06 February 8, 2000

John Hancock Mutual Life Ins. Co.
38 ■ Pension and Welfare Benefits Administration – 2000 Report to Congress

2000-11 March 13, 2000

Metropolitan Life Ins. Co.

2000-34 July 6, 2000

Fidelity Mutual Life Ins. Co.

2000-36 July 6, 2000

Canada Life Assurance Co.

2000-38 August 10, 2000

Standard Insurance Co.

2000-53 November 1, 2000

American Mutual Holding Co.

2000-57 November 13, 2000

Sun Life Assurance Co. of Canada

Exemption for Employer Securities:

2000-68 December 21, 2000

Masters, Mates & Pilots Pension Plan

Exemption for Index-Linked Debt Securities:

2000-63 December 6, 2000

Merrill Lynch & Co.

Exemptions for Initial Public Offerings:

2000-25 June 1, 2000

Morgan Guaranty Trust Co.

2000-26 June 1, 2000

Goldman, Sachs & Co.

2000-27 June 1, 2000

Chase Manhattan Bank

2000-28 June 1, 2000

Citigroup, Inc.

2000-29 June 1, 2000

Morgan Stanley Dean Witter & Co.

Exemption for Performance Fees:

2000-37 August 10, 2000

The Banc Funds Co. LLC
Pension and Welfare Benefits Administration – 2000 Report to Congress ■ 39

Exemption for QPAM-Related Relief:

2000-49 October 11, 2000

Actuarial Sciences Assoc.

2000-70 December 21, 2000

HSBC Holdings plc

EXPRO Grant for QPAM-Related Relief:

2000-30E December 4, 2000

Normura Corp.

Exemption for Reinsurance:

2000-48 October 11, 2000

Columbia Energy Group

Exemptions for Securities Lending:

2000-47 September 18, 2000

Goldman, Sachs & Co.

2000-61 November 24, 2000

Maple Partners Financial Group

EXPRO Grants for Securities Lending:

2000-18E June 29, 2000

Credit Suisse First Boston

2000-20E August 19, 2000

J. P. Morgan & Co., Inc.

2000-28E November 25, 2000

Deutsche Bank AG

Exemptions for “Synthetic” GICs:

2000-05 February 8, 2000

Business Men’s Assurance Co.

2000-13 March 13, 2000