For a copy of the following presentation, please visit our

1. This UBA Employer Webinar Series is brought to you by United Benefit Advisorsin conjunction with Jackson Lewis For a copy of the following presentation, please visit our website at www.UBAbenefits.com. Go to the Wisdom tab and then to the HR webinar series page.

2. Presented by: Avery M. Chenin, Esq. avery.chenin@jacksonlewis.com Teresa Y. Huang, Esq. teresa.huang@jacksonlewis.com June 11, 2013 United Benefits Advisors:DOL Audits of Health Plans

3. About the Firm Represents management exclusively in every aspect of employment, benefits, labor, and immigration law and related litigation Over 700 attorneys in 53 locations nationwide Current caseload of over 5,000 litigations and approximately 300 class actions Founding member of L&E Global

4. Disclaimer This presentation provides general information regarding its subject and explicitly may not be construed as providing any individualized advice concerning particular circumstances. Persons needing advice concerning particular circumstances must consult counsel concerning those circumstances.  Indeed, health care law is highly complicated and it supplements and amends an existing expansive and interconnected body of statutory and case law and regulations (e.g., ERISA, IRC, PHS, COBRA, HIPAA, etc.).  The solutions to any given business’s health care plan compliance and design issues depend on too many varied factors to list, including but not limited to, the size of the employer (which depends on complex business ownership and employee counting rules), whether the employer has a fully-insured or self-funded group health plan, whether its employees work full time or part time, the importance of group health coverage to the employer’s recruitment and retention goals,  whether the employer has a collectively-bargained workforce, whether the employer has leased employees, the cost of the current group health coverage and extent to which employees must pay that cost, where the employer/employees are located, whether the employer is a religious organization, what the current plan covers and whether that coverage meets minimum requirements, and many other factors.  IRS Circular 230 disclosure: Any tax advice contained in this communication (including any attachments or enclosures) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication. (The foregoing disclaimer has been affixed pursuant to U.S. Treasury regulations governing tax practitioners.)

5. Our Program Today • A Few Words on Health and Welfare Plans • U.S. Department of Labor (“DOL”) Background • What to Expect if your Plan is audited • What prompts a DOL audit of a plan? • What steps to take upon receipt of notice of the DOL audit? • How DOL audits or investigations are resolved? • Current “Hot Topics” • Potential Penalties • Proactive Measures

6. What is a Health and Welfare Plan? • Any plan, fund or program established and maintained by an employer, an employee organization, or both • For the purpose of providing participants and beneficiaries, through purchase of insurance or otherwise • Medical, surgical, hospital care or benefits, or • Benefits in the event of sickness, accident, disability, death, unemployment, vacation, apprenticeship or training programs, day care centers, scholarships funds, or prepaid legal services

7. What Governs Health and Welfare Plans? • Complex set of Federal and state statutes and regulations • The Employee Retirement Income Security Act (“ERISA”) • Consolidated Omnibus Budget Reconciliation Act (“COBRA”) • Health Insurance Portability and Accountability Act (“HIPAA”) • Genetic Information Nondiscrimination Act (“GINA”) • Michelle’s Law • Affordable Care Act

8. DOL Background • Charged with the responsibility for the administration and enforcement of ERISA • Primary responsibility for oversight of employee benefit plans delegated to Employee Benefits Security Administration (“EBSA”) • 10 Regional Offices in CA, GA, IL, MA, MO, NY, OH, PA, and TX • Multiple District Offices in almost every state

9. DOL Background (Continued) • EBSA Mission Statement “The mission of the Employee Benefits Security Administration is to assure the security of the retirement, health and other workplace related benefits of America's workers and their families. We will accomplish this mission by developing effective regulations; assisting and educating workers, plan sponsors, fiduciaries and service providers; and vigorously enforcing the law.” [Emphasis added.] http://www.dol.gov/ebsa/aboutebsa/org_chart.html#mission

10. DOL Background (Continued) • “Vigorously enforcing the law” translates to: • Approximately 81% of EBSA’s 2013 budget (post-sequestration) is devoted to enforcement actions ($140 million) • Approximately 72% of EBSA’s 3,566 civil cases closed with monetary payments or other corrective measures in 2012

11. DOL Background (Continued) • EBSA Chain of Command for Audits • Investigator • Senior Investigator/Group Supervisors • Associate Regional Directors and Regional Directors • Office of Enforcement - EBSA “HQ” in Washington, D.C. • Deputy Secretaries of Labor and Assistant Secretary of Labor • Other related agencies: • Office of the Solicitor (EBSA’s legal counsel) • Office of the Chief Accountant (DOL’s Form 5500 office)

12. What Prompts an Audit? • Participant Complaints • Referrals from Fiduciaries or Plan Service Providers (rare) • Audit flags from Form 5500 • Delinquent contributions • Late filings • National Initiatives • Random Selection

13. Notice of a DOL Audit • DOL Notice of an Audit may be • Via a phone call from an investigator, or • A written document request • Documents Requested - Short Form: • Plan Documents • Employee Notices and Summary Plan Description • Summary Payroll Registers and Claims • Board Minutes Relating to the Plan • Form 5500

14. Notice of a DOL Audit (Continued) • Documents Requested – Long Form: Short Form Plus: • List of Plan Officials and Service Providers • Premium Payments (if not self-insured) • Certificate or Evidence of Coverage (if not self-insured) • Insurance Policies (if not self-insured)

15. Scope of a DOL Audit • Plan Documents • Plan Administration and Operations • Required Disclosures and Other Employee Communications • Claims Procedures • Fidelity Bond Coverage • Funding and Investment of Plan Assets • Appointment, Replacement, and Indemnification of Plan Fiduciaries

16. Initial Steps Upon Receiving the DOL Notice • DO: • Notify your ERISA counsel (and general corporate counsel) immediately • Work with ERISA counsel to produce the requested documents • Tender the DOL Audit • If the company has fiduciary liability insurance • DO NOT: • Ask what prompted the audit • Volunteer documents or information that is not requested • Ignore the notice

17. Document Production • Sources of Records and Information: • Internal Employees: Executives, Office Managers, Human Resources, Payroll, In-House Counsel • External: Corporate Counsel, Plan’s Third-Party Record Keepers or Administrators, Accountants, Insurance Providers (contacted through the insurance broker) • Designate one person to coordinate the collection and production of documents and communicate with the DOL

18. Document Production (Continued) • Be Organized • Stick to DOL’s checklist for organizing principle • Arrange in chronological (or reverse chronological) order within each numbered category • Compile in indexed binders (or numbered folders if providing electronically) • Be comprehensive: • Explain the absence of missing information or documents • Identify compliance problems (if any) in advance

19. Document Production (Continued) • Pay attention to dates • Most requests are limited to most recent 3 full years • Common Exception: Grandfathered Plans under the Affordable Care Act (March 23, 2010) • Statute of Limitations - Fiduciary Claims: Section 413 of ERISA (3 or 6 year statute) • Statute of Limitations Non-Fiduciary Claims: Most analogous state statute of limitations

20. Document Production (Continued) • Comprehensive, organized, and timely responses: • Often reduce or eliminate the need for an interview or on-site review • Demonstrates good faith efforts to cooperate with the audit or investigation • Establishing a rapport with the investigator will help if corrective actions are required to close the audit

21. DOL Interviews or On-Site Reviews • If the DOL requests an interview or insists on reviewing documents on-site: • Review any compliance issues with ERISA counsel in advance • Arrange for separate representation of fiduciaries (as applicable) • Determine who will be interviewed (person most knowledgeable) • Arrange to have counsel present • Designate an appropriate location for the interview/review

22. DOL Interviews or On-Site Reviews (Continued) • Selecting an appropriate location: • Provide comfortable, usable working space • Avoid high traffic areas • Have all documents produced readily accessible (and preferably duplicated) • Consider an external location: • Limits disruption to business operations • May raise questions as to why business documents are housed off-site

23. DOL Interview Protocols • Usually informal (not recorded on tape or video) • DOL Investigator will: • Ask questions until he has covered his agenda (not divulged) • Act professionally • The Interviewee should: • Be familiar with the Plan Documents and plan operations • Be prepared to address compliance issues and propose or describe corrective measures • Be available for at least 3 hours if not the full day

24. DOL Interview Protocols (Continued) • The Interviewee should (continued): • Respond honestly and as specifically as possible • Address only the questions asked • Ask the Investigator to clarify any questions that are ambiguous • The company or interviewee should not: • Designate an interviewee with little to no knowledge of the Plan • Offer to take the DOL Investigator out to lunch • Use the interview as a forum for discussing (or complaining about) political views or any matters not related to the Plan

25. Throughout the Audit • Be Professional • Be responsive to DOL requests for information and documents • Keep a detailed record of every interaction with the DOL • Be patient • Even after the initial document review or interview, the DOL may ask for supplemental documents or information over an extended period of time

26. How Will the Case be Resolved? • Outcomes: • No action • Corrective Measures Required • Litigation • Case cannot close until the reason for the audit under “Predication” section in Report of Investigation is resolved or explained (according to the DOL Enforcement Manual)

27. How Will the Case be Resolved? (Continued) • If a Problem is Identified:Voluntary Compliance Letter (“VC Letter” or “VC Notice Letter”) • Signed by Regional Director • Plan Fiduciaries have 10 days to respond • DOL usually will grant at least one extension for good reason • Proof of Correction must be submitted within agreed upon timeframe • Process (including review and acceptance of correction) can last from a few weeks to a few months

28. How Will the Case be Resolved? (Continued) • “No Action” Closing Letter – Several Variations • No ERISA violations found • Violations cited, however, DOL does not deem case fit for further action (“warning closing letter”) • Violations cited, however, no damages or de minimis damages to plan • Violations cited and corrected (following receipt of VC Letter)

29. How Will the Case be Resolved? (Continued) • Occasionally the investigation just ends, sometimes without written communication or closure • Retain records of the audit • Create file memo for resolution of any issues identified during the document production • May request written confirmation of audit conclusion • Balance need for closure against risk of inviting further scrutiny or request for tolling agreement

30. Hot Topics • DOL National Priority: Health Benefits Security Project • Started in 2010 • Affordable Care Act • Identifying and shutting down abusive Multiple Employer Welfare Arrangements (MEWA), which covers unrelated employers not subject to bona fide collective bargaining agreement (CBA) • Investigation of Insurance Companies and Denials of Claims • Criminal Investigations of Fraudulent Medical Providers

31. Hot Topics (Continued) • Plan Operations and Disclosures, particularly: • Elimination of Lifetime Limits • Extension of Coverage to Dependents to age 26 • Women’s Health notices (pregnancy and cancer rights) • Certificates of Creditable Coverage • Internal and External claims and appeals • Grandfathered Plans • Plan must have been in place on March 23, 2010

32. Penalties • DOL may assess: • Civil Penalties • Criminal Penalties • The DOL penalties may be part of a pre-litigation settlement agreement • DOL may refer case to another agency or agencies • DOL may pursue litigation

33. Civil Penalties • ERISA §502(c) penalties: $1,000 per day for failure to file Form 5500 • ERISA §502(i) penalties: 5% of amount involved in prohibited transaction • ERISA §502(l) penalty – 20% of the mandatory penalty imposed by the DOL on the recovery amount • Settlement or Consent judgment • Penalty waiver may be available for good faith, financial or other hardship (rarely granted)

34. Criminal Penalties • ERISA §501 penalty • Willful violation of ERISA’s reporting and disclosure requirements • Maximum: $100,000 (individual)/ $500,000 (other) and/or 10 years’ imprisonment • Additional penalties for false statements and/or concealment, theft or embezzlement from an ERISA plan, and criminally influencing the operations of ERISA plans (under the U.S. Criminal Code)

35. Other Penalties • If referred to the IRS: • Potential plan disqualification • Excise Taxes • If the matter proceeds to trial: • Attorney’s fees • Possible punitive damages • Negative press

36. Proactive Measures • Effective plan governance • Document plan sponsor/administrator procedural prudence • Keep all plan related materials in one location • Ensure that all plan documents, amendments, and resolutions are signed and dated • Maintain adequate insurance • Fidelity Bond and Fiduciary Liability Insurance

37. Proactive Measures (Continued) • Have HR take ownership of the plan • Learn the legal requirements and updates • Carefully review the Evidences of Coverage and all materials provided from service providers • Seek expert advice, as needed • Establish written procedures and controls forenrollment, claims for benefits or disputes, and ensuring timely distribution of required disclosures

38. Proactive Measures (Continued) • Have HR Take Ownership of the Plan (Continued) • Keep the Summary Plan Description up to date and accurate • Keep the Summary Plan Description and all notices easily accessible to participants • Response promptly and effectively to participant inquiries • Timely file all Forms 5500

39. Proactive Measures (Continued) • Have HR Take Ownership of the Plan (Continued) • Conduct periodic internal audits to ensure compliance • Take advantage of resources freely available, like the self-compliance tools at http://www.dol.gov/ebsa/healthlawschecksheets.html • Plan administration is usually the plan sponsor’s responsibility—do not just expect your broker to take care of these responsibilities for you

40. Proactive Measures (Continued) • Identify and correct any errors or issues before the DOL identifies the problems • DOL offers voluntary correction programs for certain listed transactions and for late filings of Form 5500 with reduced penalties • Once the DOL provides notice of a plan audit, these voluntary correction programs cease to be available

41. Proactive Measures (Continued) • DOL Voluntary Fiduciary Correction Program (VFCP): • 19 covered transactions subject to VFCP • Model application available • Supporting documentation and proof of correction required • 3-year bar from reapplying • Usually no penalties but must pay “lost earnings” or “restoration of profits” to plan as part of correction

42. Proactive Measures (Continued) • DOL Delinquent Filer Voluntary Compliance Program (DFVCP): • Reduced penalties for late or missing filing of Form 5500 • Ineligible if the Office of the Chief Accountant issues a notice of an intent to assess a penalty • Caution: May raise audit risk

43. Concluding Remarks • Know the Plan • Know the Legal Requirements • Consult the Experts as Needed • Correct Errors in Advance • If Audited: • Immediately consult ERISA counsel • Be professional, organized, and comprehensive • Do not panic

44. Questions? Workplace law. In four time zones and 47 major locations coast to coast.

45. Thank you for your participation • in the UBA Employer Webinar Series • If your question was not answered during the webinar or • if you have a follow-up question, you can email the presenters today or tomorrow at: UBAwebinars@jacksonlewis.com www.UBAbenefits.com www.jacksonlewis.com To obtain a recording of this presentation, or to register for future presentations, contact your local UBA Partner Firm.