Sports fans, you can breath easier about your fantasy football lineups — Michael Vick is out of the doghouse with the U.S. Department of Labor, presuming he complies with a consent judgment. We had cautioned in an earlier post that Vick’s release from prison did not necessarily mark the end of his government obligations, given DOL allegations of ERISA violations. As explained in the DOL’s press release, the DOL’s complaint alleged that Vick and others improperly removed $1.35 million of pension plan assets to help pay the criminal restitution imposed on Vick after his conviction for unlawful dog fighting, and to help pay his attorney in his bankruptcy cases. Vick and his company, MV7 LLC, agreed to repay at least $416,461.10, pay a fiduciary to manage the plan until its termination, and pay a monetary penalty. The $933,539 difference between the amount alleged in the complaint and the repayment amount is not explained in the press release, though perhaps that is because Vick agreed to forfeit his share of the pension benefits. Vick can play football, but he is permanently barred from being an ERISA plan fiduciary.
Hopefully we don’t need to caution our readers to refrain from participating in unlawful dog fighting, and from “improperly removing” pension plan assets to buy their way out of trouble. But there is one sentence in both this press release and another press release about an Ohio mortgage broker that hits closer to home: “In fiscal year 2008, [DOL] achieved monetary results of $1.2 billion related to pension, 401(k), health and other benefits for millions of American workers and their families.” If someone out there is essentially stealing well over $1.2 billion per year of employee money (since this is just the amount recovered), shouldn’t we be appalled at the systemic flaw that allows this to happen? But is that really what is happening, or do employers need to be more worried about how DOL is getting to this $1.2 billion per year figure? A significant portion of this large dollar figure is related to participant contributions that EBSA argues “were not timely contributed” to a benefit plan.
Concerning the DOL announcement of the Ohio action, DOL has sued the former president of a Twinsburg company, alleging that he was a fiduciary, and that he failed to timely forward participant elective deferrals to a 401(k) plan on a timely. Who is a fiduciary and what is timely? Therein lies the risk for other plan sponsors and administrators. The DOL regulations set forth “facts-and-circumstances” definitions for both of these determinations. Our experience is that DOL is being very aggressive in applying these vague standards in an effort to force “voluntary” compliance and corrective contributions from plan sponsors and administrators.
Under the regulations, participant contributions become plan assets “as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets” but in no event later the fifteenth business day of the following month for 401(k) plans (or 90 days for welfare plans). In our experience, DOL believes that, ideally, participant contributions would be deposited in trust the same day as the payroll withholding. Reasonable is somewhere between ideal and maximum, but where? The regulations recognize that circumstances can vary significantly from employer to employer, and common sense suggests that circumstances can vary from payroll period to payroll period. Our experience is that DOL is typically not so flexible or understanding during an investigation.
What does all of this mean? DOL plays an important role in protecting retirement benefit assets, but you should know that it is not just criminals and embezzlers who need to be concerned about DOL enforcement. Every employer that sponsors or administers a benefit plan with participant contributions should be concerned about this grey area. If you are responsible for remitting participant contributions to ERISA plans, we encourage you to review your practices with legal counsel. If you are notified of a DOL investigation, legal counsel is especially important to help you defend against a DOL assertion that the contributions are untimely. Finally, it is much better to identify and correct any delinquent contributions through an internal review before DOL shows up at your door.