By Law professor Steve Diamond
After stories surfaced of a possible “raid” by federal agents on SAG’s pension and health plan, the Plan trustees themselves responded with an unusual statement denying that any such raid had taken place. They claimed that all that was happening was a “routine” field audit by the Department of Labor. This led pro-merger advocates to rush to a judgment that really there was nothing to see here, so move along.
The problem with this story is that audits by the Department of Labor and the IRS, which have regulatory authority to monitor employee benefits plans, may take place on a regular basis but they are never “routine.” And of course the Plan trustees do not know now what the outcome of the audit will be so it is a mistake for them to claim that this audit is “no different” than prior audits. If the employees of the SAG plan or the trustees are treating this multi-year investigation, the 10th in the last 25 years, as routine they are likely doing so only for public consumption. Otherwise, they would likely be in violation of their fiduciary obligation to the plan’s beneficiaries and participants.
Audits by a federal agency are not the same as the audits by a plan’s outside auditing firm. The latter are required every year in order to prepare reporting statements to federal agencies and to participants and beneficiaries. But audits by the DOL or the IRS are aimed at finding out if there is fraud or incompetence or weak internal plan controls at work. A “field” audit, where government agents come on site to review documents and meet with Plan staff, is the most stringent of the several forms that an audit can take. Other less demanding audits could include a questionnaire, compliance check or correspondence audit.
In other words, the SAG plan is now being subjected to the closest form of scrutiny allowed under ERISA which empowers both the DOL and the IRS to investigate benefits plans for civil and criminal violations.
While an audit’s existence does not mean that there is, in fact, a problem at the plan it usually is triggered, according to experts in the area, by one of several possibilities, including complaints by plan participants (and of course at the SAG plan there is the now infamous whistle blowing letter by Craig Simmons), red flags because of the way in which the plan has described its assets or benefits on its filings with the government or concerns about whether the plan’s own auditors have done an adequate job.
In the case of SAG, for example, the investigation into the Simmons complaint led to a disclosure of a multi-million dollar fraud that was not prevented by internal controls at the plan. Both the DOL and the IRS have become more aggressive in audits of benefits plans and in 2010, when the SAG plan says the current audit began, the DOL first set up its “Contributory Plans Criminal Project” to target fraud against participants and beneficiaries.
While no one can know now the outcome of the current audit, it is over the top to conclude that is it much ado about nothing or is simply routine. The weaknesses in internal controls admitted by the plan itself in response to the Simmons letter (the Plan told participants and beneficiaries that it had created a new board committee with its own independent counsel), a statement by pro-merger SAG Watch site that the Plan had to strengthen internal controls after a prior incident of malfeasance, the public declaration by Bob Carlson (a merger opponent and trustee) that the merger would place a “staggering burden” on the plan, and now the admission of an ongoing multi-year investigation by the Department of Labor all point to the fact that SAG went into the merger negotiations with AFTRA at a time of weakness. If the merger is approved there will be very difficult internal battles to resolve the problems that merger does not touch, including the future of the vitally important health care and pension plans built over so many years by the hard work of SAG members.
The Ol’ SAG Watchdog
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