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DOL Home > OALJ > ERISA > USDOL, PWBA v. Northwestern Institute of Psychiatry, 1993-RIS-23 (ALJ Dec. 21, 1993)
USDOL/OALJ Reporter USDOL, PWBA v. Northwestern Institute of Psychiatry, 1993-RIS-23 (ALJ Dec. 21, 1993)
Date: December 21, 1993
Case No.: 93-RIS-23
In the Matter of
U.S. DEPARTMENT OF LABOR, PENSION AND WELFARE BENEFITS ADMINISTRATION Complainant
v.
NORTHWESTERN INSTITUTE OF PSYCHIATRY Respondent
Appearances:
Stevan Durovic, Esq., For the Complainant
Alan S. Grodnitzky, Esq., For the Respondent
Before: Ainsworth H. Brown Administrative Law Judge
DECISION AND ORDER
This proceeding arises under Section 502(c)(2) of the Employee Retirement Income Security At of 1974 ("ERISA"), as amended, 29 U.S.C. §§ 1001, et seq., and its implementing regulations. 29 C.F.R. § 2509, et seq. The purpose of ERISA is to protect the integrity of employee benefit plans maintained by employers. § 2 of ERISA. Through Section 502(c)(2) of ERISA the U.S. Department of Labor (DOL or Complainant) seeks to assess a civil penalty on the employee benefit plan maintained by Northwestern Institute of Psychiatry (NIP or Respondent) for deficiencies in the plan's 1988 annual report.
Under Section 104(a)(1)(A) of ERISA, the administrator of a employee benefit plan is required to file an annual report within 210 days of the close of a plan year. The general contents of the annual report are set forth in Section 103 and are further
[PAGE 2] defined in the regulations. See e.g., 29 C.F.R. § 2520.103-1. The annual report appears as a completed Form 5500 "Annual Return/Report of Employee Benefit Plan." 29 C.F.R. § 2520.103-1(b)(1). The inability of NIP to state reasonable cause for its failure to file a satisfactory report for the 1988 plan year forms the basis of this action.
This matter is presently before this Court on the Respondent's Motion for Summary Decision and the Complainant's Cross-Motion for Summary Decision. 29 C.F.R. § 2570.67.
FINDINGS OF FACT
While NIP has attempted to demonstrate to this Court that material facts are in dispute between the parties, careful consideration reveals that these disputes focus on legal interpretation and characterization and not on the sequence or occurrence of the actual events that transpired. Therefore, this Court makes the following findings of fact.
During its 1988 Plan Year, NIP maintained a defined contribution employee benefit plan for 185 of it 264 employees. On March 31, 1989 NIP completed its 1988 Plan Year. On January 16, 1990, NIP through a professional service, Tycor Benefits Administrators, Inc., filed its annual report with the Internal Revenue Service (IRS). This filing was accompanied by an appropriate request for extension to file the report later than the 210 day period after the close of the plan year as required by Section 104 of ERISA.
By a letter dated February 14, 1990, the IRS informed NIP of reporting deficiencies contained in its Form 5500. Among the deficiencies noted were the absence of a Schedule B which relates to accounting for investments, the absence of a report form an Independent Qualified Public Accountant (IQPA); and the absence of a Schedule C which relates to Service Provider/Trustee/Service Provider Termination Information. See, § 103; 29 C.F.R. § 2520.103-1. In this letter NIP was also warned that it may be subject to enforcement action by the DOL.
On February 28, 1990, NIP forwarded to the IRS certain corrections to the Form 5500 including a Schedule C and offered an explanation for the missing Schedule B. Additionally, the author of the letter, Michael Barber, the plan administrator for NIP, stated that the IQPA opinion letter "is currently being prepared" and would be forwarded when available.
[PAGE 3] Noting the deficiencies in the partial corrections forwarded by NIP, on March 20, 1993, the IRS sent its second letter to NIP warning of the continued deficiencies in its Form 5500. The ongoing deficiencies included the absence of a Schedule B and IQPA opinion letter. While NIP had filed missing the Schedule C, it was deficient because it failed to include certain required information. In this letter NIP was reminded that the DOL has enforcement authority and NIP was given another thirty days to correct the outstanding deficiencies.
Having not been contacted by NIP in the thirty day period following its March 20, 1993 letter, the IRS send a third letter to NIP outlining the deficiencies in its Form 5500. Once again, NIP was granted thirty days to correct the deficiencies.
On June 20, 1993 NIP for the third time attempted to correct its Form 5500 by forwarding parts of the missing schedules; however, Michael Barber also stated that the missing IQPA opinion letter would be sent "under separate cover" and explained that it was delayed because "information is currently being held up due to lack of information that needs to be submitted from the insurance carrier that was dismissed during the year."
On October 26, 1990 the DOL sent a Notice of Rejection to NIP. The basis of the rejection was the continued absence of the IQPA opinion letter despite the promises of February and June, the absence of a Schedule B and missing information from the now filed Schedule C. NIP was warned that its failure to correct these problems within forty-five days could result in penalties under Section 104(a)(5) and Section 502(c)(2) of ERISA.
On November 23, 1993 NIP filed an amended Form 5500 that, for the first time, included an IQPA. In its cover letter NIP did not explain why this report is dated April 16, 1990 while it had represented as late as June that a report was not yet prepared.
Despite NIP's most recent attempt to correct the deficiencies in its Form 5500, the DOL determined through a Notice of Intent to Assess a Penalty dated March 15, 1991 that the report continued to be deficient. 29 C.F.R. § 2560.502c-2(c). The DOL noted that the NIP amended Form 5500 filing was deficient because, while finally included, the IQPA opinion was not presented in a comparative format. 29 C.F.R. § 2520.103(b)(2)(i). The amended Form 5500 was also deficient because there was no Schedule of Assets Held for Investment or a Schedule of Reportable Transactions. 29 C.F.R. § 2520.103-10.
[PAGE 4] Under the regulations, the IQPA opinion is required to extend to the material contained in those schedules so in their absence the IQPA opinion was incomplete. See, 29 C.F.R. § 2520.103-1(b)(5)(iii)(A).
This notice also set forth how the intended penalty of $86,500 was to be assessed:
Deficiency item #1: Missing accountant's report: $150 per diem for 500 days = $75,000 (a maximum of $50,00 is assessed for the deficiency).
Deficiency item #2: Financial reporting items: $100 per diem for 500 days = $50,000 (a maximum of $36,500 is assessed for this deficiency).
NIP was also directed to file a proper filing within forty-five days or risk further penalties. Furthermore, NIP was directed that it had the opportunity to file a statement of reasonable cause for the failure to file a complete annual report under 29 C.F.R. Section 2560.502c-2(e). Finally, the Notice of Intent to Assess Penalty informed NIP that "the statement must contain a declaration by the plan administrator that the statement is made under the penalties of perjury." See also, id.
Within the thirty day time period required by 29 C.F.R. Section 2560.502c-2(e), NIP filed a Statement of Net Assets in comparative format, a Schedule of Assets Held for Investment; and a Schedule of Reportable Transactions. However, the IQPA opinion had not been amended in any way to extend the IQPA opinion to the newly produced schedules. Therefore the IQPA opinion was incomplete. See, 29 C.F.R. § 2520.103- 1(b)(5)(iii)(A). Furthermore, despite being required to do so by the regulations and being directly instructed to do so by the DOL, NIP failed to provide any reasonable cause or sign a perjury declaration with this filing.
On September 10, 1991 the DOL forwarded to NIP a Notice of Penalty Assessment for the continued deficiencies in the amended Form 5500. The DOL also accepted NIP's letter of April 12, 1990 as a statement of reasonable cause but noted that it did not contain a declaration that it was made under the penalties of perjury. The Notice plainly stated: "Your failure to file timely a statement of reasonable cause containing such a declaration is deemed to constitute a waiver of your right to appear and contest the facts alleged in the Notice of Intent to Assess and Penalty . . . the Notice of Intent to Assess a Penalty has accordingly
[PAGE 5] become a Final Order." 29 C.F.R. § 2560.502c-2(g).
In an attempt to collect the penalty that had been assessed on NIP, on October 11, 1992 the DOL sent NIP a letter stating its intent to collect the now assessed penalty.
On October 21, 1991 NIP filed another incomplete Form 5500 but for unexplained reasons it was not signed.
On January 17, 1992 NIP filed a complete Form 5500 acceptable to the DOL.
On November 23, 1993 NIP attempted to file under the "Grace Plan" for late filers announced in 57 Fed. Reg. 14437 (April 20, 1992) and transmitted a check for ,000.00 to the DOL. This check was subsequently negotiated by the DOL.
NIP's failure to include a declaration of perjury in its statement of reasonable cause converted the Notice of Intent to Assess a Penalty in a final order of the DOL. 29 C.F.R. § 2560.502c-2(f). Having no further administrative recourse, NIP filed a Complaint in the United States District Court for the Eastern District of Pennsylvania at Civil Action No. 92-321. In response to NIP's Motion for Summary Judgment, the Court issued an order dated February 24, 1993 which allowed NIP to amend its statement of reasonable cause after which the DOL was directed to issue a determination.
Pursuant to the Court's order, NIP filed an expanded statement of reasonable cause dated March 4, 1993 that stated, inter alia, that it "reasonably relied in good faith on professional accountants and pension administrators to perform their obligations in accordance with applicable law."
Pursuant to the Court's order and 29 C.F.R. Section 2560.502c-2(g) the DOL issue a determination letter dated April 7, 1993. Based upon NIP's statement of reasonable cause, DOL found reasonable cause to waive (75%) of the assessed penalty because:
1. The 1988 plan year filing has finally be brought into compliance with applicable requirements; and
2. the plan administrator has expanded considerable effort to have his Statement of Reasonable Cause considered.
However, the DOL also found that there was no reasonable cause to waive the other 25% because of: 1) the failure to file a
[PAGE 6] satisfactory annual report; 2) the failure to file a correct report within 45 days of the Notice of Rejection; 3) the mistaken reliance on professional accountants and pension administration service providers which does not abate an administrator's fiduciary duty; 4) the failure to file a correct report for over one year after the Notice of Rejection; and 5) the lack of substance to the first statement of reasonable cause.
It is from this notice of determination that NIP files this appeal.
Subsequent to the filing of the notice of appeal, the DOL noticed that an error appeared in the Determination letter issued on April 7, 1993. The April 7, 1993 Determination letter improperly indicated that "[a]n acceptable IQPA report was submitted to [DOL] on October 21, 1991" when in fact no such report was filed until January 17, 1992. Accordingly, on June 17, 1993, it issued a second determination letter to correct this error.
CONCLUSIONS OF LAW
NIP finally filed a correct Form 5500 over two years after it was due to be filed under Section 104 of ERISA. During that time, two separate agencies charged with administrating the various provisions of ERISA, the IRS and DOL, sent NIP no less than six letters outlining deficiencies in the Form 5500. Even after receiving the Notice of Rejection from the DOL on October 26, 1990, in which NIP was given forty-five days to correct any errors, it took over one year for NIP to file a complete report.
Intermingled with NIP's repeatedly incomplete filings is the prevalence of the negligent discharge of the plan administrator's fiduciary duties under ERISA. The violations sought to be enforced by the DOL are not mere technical reporting provisions but are important measures designed to promote the purpose of ERISA, that is, a remedial statue designed to protect valuable employee benefit plans though careful administration and regulation. See, Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504 (1981); ERISA § 2.
This Court is satisfied that the DOL afforded NIP every opportunity under the law to correct and explain the errors in its Form 5500 for Plan Year 1988. Therefore, the penalty assessed is reasonable. Furthermore, pursuant to the order of the United States District Court, the evidence demonstrates that the DOL has fully considered the statement of reasonable cause
[PAGE 7] dated March 4, 1993 by NIP and has adjusted the penalty to be assessed accordingly.
In both its Motion for Summary Decision and its Reply to DOL's Cross-Motion for Summary Decision, NIP claims that the maximum penalty it is subject to is ,000 based on its filing of November 23, 1992 under the Annual Report Grace Period announced at 57 Fed. Reg. 14437 (April 20, 1992). However, the Court is unpersuaded by Respondent's interpretation of this program. While it is true that the amnesty program places a ,000 cap on the penalty for late filing, it does not insulate the filer from other related penalties. This Court has recognized that: "It does not prevent the imposition of penalties that otherwise be assessed. There are separate penalties for failure to file timely as opposed to penalties for non-compliance with reporting requirements." Department of Labor v. Spalding & Evenflo Companies, Inc., 92-RIS-19 (1993). This interpretation is consistent with the plain language of the regulation:
"Annual reports received during the Grace Period are subject to the usual edit checks. Plan administrators will be given an opportunity to correct deficiencies, in accordance with the procedures contained in the regulations located at 29 C.F.R. § 2560.502c-2 and 2570.60 et seq. However, uncorrected deficiencies may result in the assessment of further penalties."
57 Fed. Reg. 14437 (April 20, 1992).
The penalties sought to be assessed by the DOL are directly related to filing deficiencies in NIP's Form 5500 and are unrelated to the lateness of the filing. At no point during the course of its enforcement activity against NIP did DOL seek to enforce a penalty for lateness.
The retention and negotiation of the Respondent's ,000.00 check in November 1993 did not operate as an accord and satisfaction of the penalty. McDonald v. U.S., 13 Ct. Cl. 225 (1987). In McDonald, the Court stated that an accord is only reached when there is "mutual agreement" that is related to a "bona fide dispute." Id. at 260. In this case, NIP has failed to establish either of these elements. First, at no time did DOL manifest intent to accept any amount less than the penalty assessed beyond the reduction afforded by the statement of reasonable cause. Second, as a matter of law, NIP's lack of desire to pay a penalty cannot reach the level of a bone fide dispute.
[PAGE 8]
Recognizing that NIP did forward a check in the amount of ,000 to the DOL, the order accompanying this decision will direct the DOL to give NIP full credit for this amount against the penalty.
After NIP filed its appeal in this case, the DOL realized that an error appeared in the determination letter that was issued on April 7, 1993. In an effort to clarify the record, the DOL issued a "second" determination letter on June 17, 1993. The error at issue relates to the date on which NIP finally filed a complete and acceptable Form 5500. NIP asserts that once its appeal had been filed, the DOL was without jurisdiction to issue this letter. However this second letter did not effect the rights of the parties in any material way because NIP had reached its statutory maximum for the violations sought to be enforced months before the date in either letter.
Considering the extraordinary length of time that transpired before NIP filed a complete Form 5500 and the severity of the omissions, including the absence of a proper IQPA opinion letter, the Court can find no basis to set aside the DOL assessment of penalty or its subsequent modification.
A total penalty of $21,625 is imposed subject to the provisions of the order accompanying this decision. 29 C.F.R. §2570.67 (a)(2)(ii).
ORDER
It is hereby ORDERED that Respondent, Northwestern Institute of Psychiatry's Motion for Summary Decision is DENIED and Complainant, U.S. Department of Labor, Pension and Welfare Benefits Administration's Cross-Motion for Summary Decision is GRANTED.
It is further ORDERED that Respondent, Northwestern Institute of Psychiatry, pay to the U.S. Department of Labor a civil penalty of Twenty-One Thousand, Six Hundred and Twenty-Five Dollars ($21,625.00) for violations of the Employee Retirement Income Security Act of 1974.
It is further ORDERED that the Respondent, Northwestern Institute of Psychiatry, be given full credit for One Thousand Dollars ( ,000.00) paid to the U.S. Department of Labor; thereby, leaving the total amount now due the U.S. Department of Labor of Twenty Thousand, Six Hundred and Twenty-Five Dollars
[PAGE 9] ($20,625.00). Respondent is directed to pay the penalty within thirty (30) days from the date of service of this decision.
Amounts not paid by that time shall be subject to penalties and interest provided for by the Act and Regulations.
__________________________ Ainsworth H. Brown Administrative Law Judge
Camden, New Jersey
NOTICE OF APPEAL RIGHTS
Pursuant to 29 C.F.R. Section 2570.69 a notice of appeal must be filed with the Secretary of Labor within twenty (20) days of the date of service of this decision or the decision of this Court shall become the final agency action within the meaning of 5 U.S.C. Section 704.
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