[Federal Register Volume 61, Number 46 (Thursday, March 7, 1996)]
[Notices]
[Pages 9203-9206]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5391]



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DEPARTMENT OF LABOR

Pension Payback Program

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of adoption of voluntary compliance program for 
restoration of delinquent participant contributions.

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SUMMARY: This document announces the adoption of a voluntary compliance 
program which will allow certain persons to avoid potential Employment 
Retirement Income Security Act civil actions initiated by the 
Department of Labor, the assessment of civil penalties under section 
502(l) of ERISA and Federal criminal prosecutions arising from their 
failure to timely remit participant contributions and the failure to 
disclose such non-remittance. The program also includes relief from 
certain prohibited transaction liability. The program is designed to 
benefit workers by encouraging employers to restore delinquent 
participant contributions to employee pension

[[Page 9204]]

benefit plans covered by Title I of ERISA.

DATES: The program applies to certain delinquent participant 
contributions that are restored to pension plans no later than 
September 7, 1996. Restorative payments must relate to amounts paid by 
participants or withheld by an employer from participants' wages for 
contribution to a pension plan on or before April 5, 1996. Written 
notification of intention to participate in the program must be 
received by the Department no later than September 7, 1996.

ADDRESSES: Notification of intention to participate in the program must 
be sent in writing to: Pension Payback Program Pension and Welfare 
Benefits Administration, U.S. Department of Labor, P.O. Box 77235, 
Washington, DC 20013-7235.

FOR FURTHER INFORMATION CONTACT:
Jeffrey Monhart, Pension Investigator, Office of Enforcement, Pension 
and Welfare Benefits Administration, U.S. Department of Labor, 
Washington, DC (202) 219-4377. (This is not a toll-free number).

SUPPLEMENTARY INFORMATION: Under a current regulation, issued by the 
Department of Labor in 1988, assets of an employee benefit plan include 
amounts (other than union dues) that a participant or beneficiary pays 
to an employer, or amounts that a participant has withheld from his or 
her wages by an employer, for contribution to the plan as of the 
earliest date on which such contributions can reasonably be segregated 
from the employer's general assets, but in no event to exceed 90 days 
from the date on which such amounts are received by the employer (in 
the case of amounts that a participant or beneficiary pays to an 
employer) or 90 days from the date on which such amounts would 
otherwise have been payable to the participant in cash (in the case of 
amounts withheld by an employer from a participant's wages). 29 CFR 
2510.3-102.
    Except as provided in ERISA Sec. 403(b), plan assets are required 
to be held in trust by one or more trustees.\1\ ERISA Sec. 403(a), 29 
U.S.C. 1103(a). In addition, ERISA's fiduciary responsibility 
provisions apply to the management of plan assets. Among other things, 
these provisions make clear that the assets of a plan may not inure to 
the benefit of any employer and shall be held for the exclusive purpose 
of providing benefits to participants in the plan and their 
beneficiaries, and defraying reasonable expenses of administering the 
plan. ERISA Secs. 403-404, 29 U.S.C. 1103-1104. They also prohibit a 
broad array of transactions involving plan assets. ERISA Secs. 406-408, 
29 U.S.C. 1106-1108.
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    \1\ ERISA Sec. 403(b) contains a number of exceptions to the 
trust requirement for certain types of assets, including assets 
which consist of insurance contracts, and for certain types of 
plans. In addition, the Secretary has issued a technical release, 
T.V. 92-01, which provides that, with respect to certain welfare 
plans (e.g., cafeteria plans), the Department will not assert a 
violation of the trust or certain reporting requirements in any 
enforcement proceeding, or assess a civil penalty for certain 
reporting violations, involving such plans solely because of a 
failure to hold participant contributions in trust. 57 FR 23272 
(June 2, 1992), 58 45359 (Aug. 27, 1993).
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    Employers who fail to transmit promptly participant contributions, 
and plan fiduciaries who fail to make diligent efforts to collect those 
amounts in a timely manner, will violate the requirement that plan 
assets be held in trust; in addition, such employers and fiduciaries 
may be engaging in prohibited transactions.
    As was noted in the preamble to the final regulation published in 
1988, the Department of Justice takes the position that, under 18 
U.S.C. 664, the embezzlement, conversion, abstraction, or stealing of 
``any of the moneys, funds, securities, premiums, credits, property, or 
other assets of any employee welfare benefit plan or employee pension 
benefit plan, or any fund connected therewith'' is a criminal offense, 
and that under such language, criminal prosecution may go forward in 
situations in which the participant contribution is not a plan asset 
for purposes of Title I of ERISA. 53 FR 17628 (May 17, 1988). The final 
regulation defined when participant contributions become ``plan 
assets'' only for the purposes of Title I of ERISA and the related 
prohibited transaction excise tax provisions of the Code. The 
Department reiterates that this regulation may not be relied upon to 
bar criminal prosecutions pursuant to 18 U.S.C. 664.
    Recent investigations conducted by the Department have revealed 
numerous violations related to employers' delay in transmitting or 
failing to transmit to employee benefit plans amounts that a 
participant or beneficiary pays to an employer, or amounts that 
employers withhold from participants' wages, for contribution to the 
plans. Although the Department believes that in the vast majority of 
contributory employee benefit plans, participant contributions are 
handled with integrity, evidence uncovered in ongoing investigations 
indicates that such delays are not uncommon.\2\ The recent enforcement 
activities, which focused on participant contributions, indicate a 
significantly higher frequency of violations for such investigations 
than the Department encounters in general.\3\
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    \2\ In the Spring of 1995 PWBA began a project to investigate 
misuse of employee contributions to employee benefit plans and in 
particular in 401(k) plans. As of October 31, 1995 there were 417 
employee contribution investigations open and 130 cases were closed 
during the year. More than $3,7 million has been recovered through 
voluntary compliance in situations where employee contributions were 
not placed in trust for participants.
    \3\ Of the 130 closed employee contribution cases, 44, or 33.8 
percent of closed cases, resulted in findings of violations of 
ERISA's fiduciary provisions. This compares to a finding of 
fiduciary violations in 12 percent of all other closed cases in FY 
95.
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    In addition, the Department, in responding to requests for 
technical assistance from employers and participants, has received 
information that many employers who receive participant contributions 
are under the misimpression that the current regulation permits a delay 
of up to 90 days in segregating such contributions, even if the 
participant contributions can reasonably be segregated much sooner. The 
Department has also received similar information from a variety of 
other sources. Such delays deprive participants of earnings on their 
contributions and increase the risk to participants and their 
beneficiaries that their contributions will be lost due to the 
employer's insolvency or misappropriation by the employer.
    In order to better protect the security of participant 
contributions to employee benefit plans, on December 20, 1995, the 
Department of Labor published in the Federal Register a notice of 
proposed rulemaking to revise the regulation at 29 CFR 2510.3-102 (60 
FR 66036). The Department's proposal would change the maximum period 
during which participant contributions to an employee benefit plan may 
be treated as other than ``plan assets'' to the same number of days as 
the period in which the employer is required to deposit withheld income 
taxes and employment taxes under rules promulgated by the Internal 
Revenue Service (IRS). The proposed regulation also solicited comments 
on the advisability of other measures that the Department might 
consider to address the problem of delays in transmitting participant 
contributions to plans. The comment period for this proposal expired on 
February 5, 1996. The Department held a public hearing on the proposal 
on February 22 and 23, 1996, in Washington, DC.

[[Page 9205]]

The Pension Payback Program

    In order to encourage persons who have been delinquent in remitting 
participant contributions to pension plans, the Department has 
determined to announce a voluntary compliance program to be known as 
the Pension Payback Program. The program applies only to the 
restoration of participant contributions and lost earnings to employee 
pension benefit plans as defined in section 3(2) of ERISA. As described 
in the following notice, the Pension Payback Program contains two 
principal elements.
    1. The Program will permit certain persons who are delinquent in 
the remittance of participant contributions to pension plans to avoid 
civil actions brought by the Department of Labor and Federal criminal 
prosecutions for such delinquencies if the conditions of the Program 
are met.
    2. A final class exemption under section 408(a) of ERISA that is 
being published in proposed form today will govern these transactions. 
However, persons who participate in the Program transaction. However, 
persons who participate in the Program may rely on the proposed 
exemption notwithstanding any subsequent modifications made in issuing 
the final exemption. Thus, on a temporary basis, pending promulgation 
by the Department of the final class exemption setting forth the 
condition for retroactive relief, the Department will not pursue 
enforcement against persons who comply with the conditions of the 
Program with respect to any prohibited transaction liability which may 
have a risen as a result of a delay in forwarding participant 
contributions. The Internal Revenue Service has advised the Department 
of Labor that it will not seek to impose the Internal Revenue Code 
section 4975 (a) and (b) sanctions with respect to any prohibited 
transaction that is covered by the proposed class exemption 
notwithstanding any subsequent changes to the proposed exemption when 
it is finalized, provided that all the requirements of the proposed 
class exemption are met.
    The conditions for each of the two elements are the same and are 
set forth in the following notice. In particular, the Program is 
available to a person only if the delinquent participant contributions 
withheld or received by an employer, excluding earnings, do not exceed 
the aggregate amount of participant contributions that were received by 
the employer for the calendar year 1995. The purpose of this limitation 
is to prevent the Program from being available to persons involved in 
particularly serious delinquencies.
    The program applies only to delinquent participant contributions 
that are restored to pension plans no later than September 7, 1996. 
Restorative payments must relate to amounts paid by participants or 
withheld by an employer from participants' wages for contribution to a 
pension plan on or before April 5, 1996. Written notification of 
intention to participate in the Program must be received by the 
Department no later than September 7, 1996.
    Under the proposed exemption, all delinquent participant 
contributions must be restored to the pension plan plus earnings from 
the date on which such contributions were paid to, or withheld by, the 
employer until such money is restored to the plan. The earnings are 
calculated at the greater of: (1) The amount that would have earned on 
the participant contributions during such period if applicable plan 
provisions had been followed, or (2) the amount that would have earned 
on the participant contributions during such period using an interest 
rate equal to the underpayment rate defined in section 6621(a)(2) of 
the Internal Revenue Code during such period. In the Department's view, 
this condition requires that the earnings be calculated on an account 
by account basis in order to mirror the earnings the participants would 
have otherwise accrued. The underpayment rate defined in section 
6621(a)(2) is based on the Federal short-term rate determined quarterly 
by the Secretary of the Treasury and is designed to reflect market 
rates of interest rather than serve as a penalty. Courts have applied 
rates determined under section 6621 in awarding prejudgment interest in 
cases under Title I of ERISA. Martin v. Harline, No. 87-NC-115J (D. 
Utah Mar. 31, 1992) 15 Emp. Ben. Cases (BNA) 1138, 1153; Whitfield v. 
Cohen, 686 F. Supp. 188, 193 (E.D.N.Y. 1988); Whitfield v. Tomasso, 682 
F. Supp. 1287, 1306 (E.D.N.Y. 1988).
    Except as provided in the final class exemption, the Program does 
not afford relief from civil actions that may be filed by persons other 
than the Departments of Labor and Justice, and the Internal Revenue 
Service. Upon finalization of the class exemption, persons who have 
complied with its conditions will not be subject to the restrictions of 
sections 406(a)(1) (A) through (D), 406(b)(1) and 406(b)(2) of ERISA 
and the sanctions resulting from the application of section 4975 (a) 
and (b) of the Code, by reason of section 4975(c)(1) (A) through (E) of 
the Code, for transactions that result from such person's failure to 
transmit participant contributions to pension plans in accordance with 
the time frames described in the participant contribution regulation at 
29 CFR 2510.3-102. The Program does not apply to criminal prosecutions 
brought by State governments, although the Department has determined 
not to affirmatively refer information to the States for criminal 
prosecution concerning persons who voluntarily restore participant 
contributions in accordance with the terms of the Program.

Notice of Adoption of Voluntary Compliance Program for Restoration of 
Delinquent Participant Contributions

Pension Payback Program

    The Department of Labor (the Department) today announced adoption 
of the Pension Payback Program which is designed to benefit workers by 
encouraging employers to restore delinquent participant contributions 
plus lost earnings to pension plans. This program is targeted at 
``persons'', as that term is defined at section 3(9) of the Employee 
Retirement Income Security Act (ERISA), who failed to transfer 
participant contributions to pension plans defined under section 3(2) 
of ERISA, including section 401(k) plans, in accordance with the time 
frames described by the Department's regulations, and thus violated 
Title I of ERISA.
    The conditional compliance program is available to certain persons 
who voluntarily restore delinquent participant contributions to pension 
plans. Those who comply with the terms of the Program will avoid 
potential ERISA civil actions initiated by the department, the 
assessment of civil penalties under section 502(l) of ERISA and Federal 
criminal prosecutions arising from their failure to timely remit such 
contributions and non-disclosure of the non-remittance. The Department 
of Justice has indicated its support for the Program. The Department of 
Labor will not pursue enforcement against persons who comply with the 
conditions of the Program with respect to any prohibited transaction 
liability which may have arisen as a result of the person's delay in 
forwarding the participant contributions until promulgation by the 
Department of a final class exemption setting forth the conditions for 
retroactive exemptive relief. A notice of proposed exemption is being 
published today in the Federal Register. Participation in the Program 
will be available to persons who rely on the

[[Page 9206]]

proposed exemption notwithstanding any subsequent modifications to the 
final exemption. The Department has further determined not to 
affirmatively refer information to the states for criminal prosecution 
concerning those persons who voluntarily restore participant 
contributions in accordance with the Program. The Internal Revenue 
Service has advised the Department of Labor that it will not seek to 
impose Internal Revenue Code section 4975 (a) and (b) sanctions with 
respect to any prohibited transaction that is covered by the proposed 
class exemption notwithstanding any subsequent changes to the proposed 
class exemption when it is finalized, provided that all the 
requirements specified in the proposed class exemption are met.
    The Program only applies to certain delinquent participant 
contributions plus earnings that are restored to pension plans no later 
than September 7, 1996. Such restorative payments must relate to 
amounts paid by participants or withheld by an employer from 
participants' wages for contribution to a plan on or before thirty days 
following the date of this announcement. Specifically, the Program 
applies to delinquent participant contributions plus earnings, provided 
that the delinquent contributions outstanding on the effective date of 
the Program, excluding earnings, do not exceed the aggregate amount of 
participant contributions that were received or withheld from the 
employees' wages for calendar year 1995. Provided that the contribution 
limitation described in the previous sentence is not exceeded, the 
Program will also apply, without limit, to the restoration of any 
earnings on delinquent participant contributions that have been 
restored to the plan prior to the effective date of this announcement.
    The Program is available only if the following conditions are met:
    (1) All delinquent participant contributions are restored to the 
employee benefit plan plus the greater of (a) or (b) below.
    (a) The amount that otherwise would have been earned on the 
participant contributions from the date on which such contributions 
were paid to, or withheld by, the employer until such money is fully 
restored to the plan had such contributions been invested during such 
period in accordance with applicable plan provisions, or
    (b) Interest at a rate equal to the underpayment rate defined in 
section 6621(a)(2) of the Internal Revenue Code from the date on which 
such contributions were paid to, or withheld by, the employer until 
such money is fully restored to the plan,

provided that the total of all outstanding delinquent contributions on 
the effective date of the Program, excluding earnings, does not exceed 
the aggregate amount of participant contributions that were received or 
withheld from the employees' wages for calendar year 1995.
    (2) The Department is notified in writing no later than September 
7, 1996 of the person's decision to participate in the Program and 
provided with: (a) Copies of cancelled checks or other written evidence 
demonstrating that all participant contributions and earnings have been 
restored to the employee benefit plan; (b) the certification described 
in paragraph (6) below; and (c) evidence of such bond as may be 
required under section 412 of ERISA.
    (3) The person informs the affected participants within 90 days 
following the notification of the Department described in paragraph (2) 
above, that prior delinquent contributions and lost earnings have been 
restored to their accounts pursuant to the person's participation in 
the Program and, thereafter, provides a copy of such notification to 
the Department. If a statement of account or other scheduled 
communication between the plan or its sponsor and the participants is 
scheduled to occur within this time period, such statement may include 
the notification required by this paragraph.
    (4) The person has complied with all conditions set forth in an 
exemption proposed by the Department today.
    (5) At the time that the Department is notified of the person's 
determination to participate in the Program, neither the Department nor 
any other Federal agency has informed such person of an intention to 
investigate or examine the plan or otherwise made inquiry with respect 
to the status of participant contributions under the plan.
    (6) Each person who applies for relief under the Program shall 
certify in writing, under oath and pain of perjury, that it is in 
compliance with all terms and conditions of the Program and, to its 
knowledge, neither it nor any person acting under its supervision or 
control with respect to the operation of an ERISA covered employee 
benefit plan:
    (a) Is the subject of any criminal investigation or prosecution 
involving any offense against the United States; \4\
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    \4\ For purposes of this paragraph, an ``offense'' includes 
criminal activity for which the Department of Justice may seek civil 
injunctive relief under the Racketeer Influenced and Corrupt 
Organizations statute (18 U.S.C. 1964(b)). A ``subject'' is any 
individual or entity whose conduct is within the scope of any 
ongoing inquiry being conducted by a Federal investigator(s) who is 
authorized to investigate criminal offenses against the United 
States.
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    (b) Has been convicted of a criminal offense involving employee 
benefit plans at any time or any other offense involving financial 
misconduct which was punishable by imprisonment exceeding one year for 
which sentence was imposed during the preceding thirteen years or which 
resulted in actual imprisonment ending within the last thirteen years, 
nor has such person entered into a consent decree with the Department 
or been found by a court of competent jurisdiction to have violated any 
fiduciary responsibility provisions of ERISA during such period; or
    (c) Has sought to assist or conceal the non-remittance of 
participant contributions by means of bribery, graft payments to 
persons with responsibility for ensuring remittance of plan 
contributions or with the knowing assistance of persons engaged in 
ongoing criminal activity.

    Signed at Washington, D.C., this 4th day of March 1996.
Olena Berg,
Assistant Secretary for Pension and Welfare Benefits, U.S. Department 
of Labor.
[FR Doc. 96-5391 Filed 3-6-96; 8:45 am]
BILLING CODE 6510-29-M