Tale of a DOL Investigation - United States. Department of Labor - Brief Article

When an "official business" letter arrived from the U.S. Department of Labor for CaICPA's Group Insurance Trust in August 1997, we had no reason to suspect that it would represent the opening salvo of a more than three-year-long investigation. Its target, GIT, has been in place since 1959, providing group medical, dental, vision, disability and life plans to CalCPA member-owned public accounting firms, and had always diligently maintained proper business practices.

In March 1997, GIT reconfigured itself to become a Multiple Employer Welfare Arrangement to operate within the various California rules and regulations governing association-sponsored health-care plans covering employers with less than 50 employees. When the California Department of Insurance licensed GIT to offer medical plans to members in public practice, we proceeded to issue the California CPA ProtectPlus plans that a significant percentage of CalCPA member-owned firms now use. As a welfare plan provider, GIT also is governed under the provisions of the 1974 federal legislation known as ERISA, which the DOL oversees.

ONLY THE BEGINNING

The DOL's letter didn't specify what they wanted to investigate. The letter asked for numerous forms and documents, including plan documents, summary plan descriptions, tax returns, annual reports, audited financial statements, board and committee minutes, fidelity bonds, service provider agreements and more. A phone call to the assigned investigator only elicited the response that they could not tell us what they were specifically looking for or why we were selected for review. In September 1997, we sent the DOL a large package of materials.

A year passed, and in October 1998, a new investigator called to say that he needed additional documents. Over the next two years we sent the DOL packages that included a seven-year history of our individual trustees, cost-reimbursement agreements, supporting documents for all payments made to CalCPA, various marketing pieces and contracts, actuarial reports, job descriptions for all of our staff, staff time records, payroll records, trust agreements, health plan contracts, premium rate schedules, firm enrollment records, plan-related correspondence, rental agreements, descriptive brochures of GIT, CPA Focus newsletters, our Y2K plan and more.

Also, during this period the DOL extensively interviewed current and prior staff members, board of trustees members, key CalCPA officers and our key vendors.

In late 1998, the DOL finally explained what it was looking for. From 1993-97, until GIT became an independent entity, CalCPA's accounting department paid most of GIT's operating expenses. GIT then reimbursed CalCPA for these payments, which totaled approximately $2 million for the five-year period. The DOL investigator explained that he was trying to determine if GIT had made payments that were not allowed under ERISA rules.

As it turns out, even though every payment GIT made to CalCPA had a fully appropriate business purpose and met all IRS rules, some may not have met ERISA's much more restrictive reimbursement rules. To avoid the possibility of future litigation, and to conclude the process, CalCPA agreed to reimburse GIT for the disputed expenditures paid or borne by it on GIT's behalf during the period under review. Finally, in late 2000, the DOL concluded its investigation.

WORDS OF WISDOM

What advice can we offer from our experience?

* Recognize that ERISA rules governing payments from a plan to its sponsor are very restrictive. We now follow a "but for" test: An expense is reimbursed by the plan to the sponsor only when it would not have been incurred "but for" the existence of the plan.

* When completing Schedule C (Form 5500), make sure that all payments are recorded under the correct service provider.

* Cooperate fully and professionally with the DOL investigator.

* Recognize that completing the investigation is likely to be demanding and time-consuming. Our closing letter arrived more than three years after the initial notice. During that period we committed substantial staff and management time and energy toward providing information and producing documentation.

* Attempt to settle open issues voluntarily before the DOL sends a letter formally citing an employer/sponsor. This will normally allow you to avoid ERISA-imposed penalties and the costs associated with any subsequent litigation.

In closing, make sure that all reimbursements made to a sponsor meet ERISA requirements at the time of payment.

John Phillips, CPA and Member of the American Academy of Actuaries, is executive director of the Group Insurance Trust. He can be reached at john.phillips@calcpa.org.

Susan St. Onge is CalCPA's chief financial officer. She can be reached at susan.st.onge@calcpa.org.

COPYRIGHT 2001 California Society of Certified Public Accountants
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