USDOL, EBSA v. PLAN ADMINISTRATOR, THIBEAULT CORP. OF NE/T-QUIP SALES & LEASING 401(K) PL…

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DOL EBSA (final agency order)

USDOL, EBSA v. PLAN ADMINISTRATOR, THIBEAULT CORP. OF NE/T-QUIP SALES & LEASING 401(K) PLAN

Docket 2009-RIS-68 · Decided Jul 19, 2011 · Decision and Order Affirming the Administrative Law Judge De

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Addresses 29 C.F.R. § 2560.502c-2, ERISA § 502 (29 U.S.C. § 1132)

U.S. Department of Labor Employee Benefits Security Administration Washington, D.C. 20210 In the Matter of:

U.S. DEPARTMENT OF LABOR, DATE: Ju ne 14, 2013

EMPLOYEE BENEFITS SECURITY

ADMINISTRATION

Complainant - Appellee OALJ CASE NO . 2009- RIS - 00068 v.

PLA N ADMINISTRATOR, THIBEAULT CORP. OF NE /T - QUIP SALES &

LEASING 401(k) PLAN

Respondent - Appellant

DECISION AND ORDER

AFFIRMING THE ADMINISTRATIVE LAW JUDGE DECISION AND ORDER

DATED JULY 19, 2011

This proceeding is on appeal f r om the United States Department of Labor (''DOL"), Office of Administrative Law Judges, and arises under the provisions of the Employee Retirement Income Security Act of 1974, as a m ended, 29 US.C. §§ 1001, et seq. ("ERISA") and the implementing regulations at 29 C.P.R. Parts 2520 (rules and regulations for report ing and disclosure), 2560 (rules and regulations for administration a nd enforcement), and 2570 (procedural regulations under ERISA).

BACKGROUND

On October 16, 2007, Thibeault Corp. of NE/T - Quip ("Thibeault"), the plan administrator of the Thibeault Corp. NE/TQuip Sales and Leasing 401(k) Plan ("40l(k) Plan" or "Plan"), file d a Form 5500 Annual Return/Report of Employee Benefit Plan for the 401(k) Plan ("Annual Report") for t he 2006 Plan Year with the U .S. Department of Labor Employee Benefits Security Administration ("DOL" or "EBSA"). Thibeault was required to have an annual audit pe r formed on the Plan and the report of an independent qualified public accountant ("IQPA") was required to be filed with the Annual Report. No such IQPA report was attached to t he A nnual Report.

The established facts are as follows:

• The 401(k) Plan held assets i n trust and had 199 pa r ticipants at the beginning of the plan year and 184 participants at end of t he plan year.

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• Under ERISA and the implementing regulations, a pla n with 100 or more participants that holds assets in trust i s required to have an a nnu al audit perfo rm ed on the plan, attach the report of an IQPA to the pl an 's annual report, and file the an nual report with DOL within 210 days after the end of the plan year.

• On October 16, 2007, Thibeault filed an Annual Report for the 40l(k) Plan for the 2006 Plan Year and filed a Schedule H with this return. On the Schedule H, Thibeault indicated that the return included a disclaimed opinion from an IQPA . No such report was attached to this Annual Report.

• On November 7, 2007, Thibeault filed an amended Annual Report for the 401 (k) Plan for the 2006 P lan Year and an amended Schedule H with this return. On the amended Schedule H, Thibeault again indicated that the return included a disclaimed opinion from a n IQP A . No such re port was attached to this Annual Report.

• On December 24, 2007, DOL issued its first thirty-day clarification letter to Thibeault requesting that it provide the required IQPA repor t and submit a schedule of assets held for investment at the end of the year in the format prescribed in the Form 5500 instructions. A response was required within thirty days.

• Thibeault did not comply with the first thirty-day clarification letter request. • On February 14, 2008, EBSA issued its second thirty-day clarification letter to Thibeault requesting that it provide an IQPA report and submit a schedule of assets held for investment at the end of the year in the format prescribed in the Form 5500 instr uctions. Again, a response was required within thirty days.

• T hibeault did not comply with the second thirty-day clarification letter request. • On September 29, 2008, EBSA issued a Notice of Rejection ("NOR") which set forth, in f urther detail, the noted deficiencies. The NOR advised Thibeault that it had forty-five days wit hin which to comply without incurring a penalty. A satisfactory response to the NOR with a completed IQPA and f inancial statements was due on or before November-13, 2008, for ty -five days from the date of the NOR.

• T hi beault's October 7, 2008 and December 4, 2008 responses to the NOR did not contain an amended 2006 annual return with the required IQPA opinion.

• On December 15, 2008, EBSA issued a Notice of Intent to Assess a Penalty ("NOI") notif y ing Thibeault of the impending $50,000 penalty assessment for its failure to file an amended 2006 Annual Report witl1 the required accountant's opinion. The NOI advised Thibeault that it had thirty-five days within which to submit a statement of reasonable cause. The NOI also makes clear that the written statement of reasonable cause must: (i) state that the plan administrator complied with the requ ire ments of Section 101(b)(l) of ERISA or state the mitigating circu m stances regarding t he degree or w illfulness of the noncompliance; (ii) set forth all alleged facts as to why the penalty, as calculated, should be reduced or not be assessed based upon Section 2560.502c-2 of the implementing regulations; (iii) contain a declaration by the plan administr ator that the statement is made under the penalties of perjury, as required under Section 2560.502c-2(e); (iv) be signed by the plan administrator or his or her authorized representative where the representative has been granted that specific authority purs uant to a duly executed, notarized power of attorney; and (v) be filed within thirty-five days at the designated address.

• On January 20, 2009, Thibeault as Plan Administrator submitted a written statement of reasonable cause ("Reasonable Cause Statement"), signed by E rn est Thibeault, III, as Plan Administrator. As reasonable cause for failure to submit a completed 2006 Annual Report, USDOL/OALJ R EPORTER P AGE 2 Thibeault stated that he was under the mistaken belief that the third p art y administrator was responsible for the administrative needs of the Plan (including the audit); that the Plan found an auditor who could perfor m the audit for $32,000, which he believed was unreasonably expensive; that the fees to administer the Plan plus t he cost of an audit exceeded the value of employer contributions to the Plan; that the company is small/medium sized and that the pa rt icipants and the company had lost proceeds due to the market conditions; that the company was having difficulty keeping em ployees employed; and that the plan administrator believed that the Plan would have been exempt from the audit requirement if he had "forced" a lump sum cash payout on any employee vested with less than $1,000 in their account. • On March 24,2009, DOL's Reasonable Cause Committee met to discuss Thibeault's Reasonable Cause Statement. The Committee expressly considered the assertions in Thibeault's Reasonable Cause Statement, Thibeault's co rr espondence in response to DOL's NOR, th e number of participants in the Plan, the dates of the NOI and Reasonable Cause Statement, and that Thibeault was not in compliance as of the date of the meeting. The Co mmittee recommended that DOL assess the proposed $50,000 penalty.

• On April 6, 2009, DOL issued a Notice of Deter mination on Statement of Reasonable Cause (NOD) to Thibeault f inding that: (i) no IQPA report or am ended Form 5500 was submitted in response to the NOI; and (ii) Thibeault failed to present reasonable cause for his failure to fil e an acceptable Annual Report in his original filing and his failure to timely corr ect his filing. T he NOD thereby assessed a $50,000 penalty against Thibeault.

• Thibeault timely f iled a request for a hea1ing before an Administrative Law Judge ("ALJ") • A s of June 18, 2010, the date of the he aring before the A LJ , T hibeault had not filed a Form 5500 Annual Report containing IQPA opinions for the plan years 2006, 2007, or 2008. • On August 9, 2010, the ALJ issued an order closing the record and requiring briefs by September 13, 2010.

• On August 27, 2010, Thibeault c am e into compliance for the 2006 pla n year by filing the Annual Report with the required audit report, a nd the report was accepted by DOL. • The post trial briefs were timely filed. Along with its brief, Thibeault filed a Motion to Reopen the Record. D OL objected to the Motion to Reopen the Record.

• The ALJ conducted a hearing on the Motion to Reopen. Thibeault sought to reopen the record to introduce evidence that it submitted a report from an IQPA, thereby making the Annual Report for the 2006 Plan Year complete.

• T he ALJ granted the Motion to Reopen and requested supplemental briefs from the pa rt ies on the applicability of United States Dep't of Labor, EBSA v. Dutch American, ALJ No. 2009RlS - 00014 (ALJ Jan. 6, 2010) (ALJ finding that reducing a Section 502( c )(2) penalty by 50% was appropriate where compliance occurred four months prior to the date of the formal hearing before the ALJ).¹

• On October 1, 2010, the ALJ receive d two exhibits from Thibeault. The first exhibit contained the Annual Ret urn/Report of Employee Benefits Plan for 2006, 2007, and 2008, the IQP As for each year, and a screen print from the DOL website indicating submission of the completed Annual Reports for each plan year with corresponding IQPAs. The second¹ In the case of U.S. Department of Labor (EBSA) v. Plan - Administrator, Dutch American I mport Co., Employee Stock Ownership Plan, 2009- RIS - 14 ("Dutch American"), the reduction of the f ine subsequently was appealed by EBSA. The Secretary set aside t h e A LJ ’ s decision in whole and imposed the full penalty in a decision issued Janua r y 26, 2012.

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R EPORTER P AGE 3 exhibit consisted of a letter f r om Steven R. Boivin, CPA, explaining the delays encountered in completing the audits.

• By mid - October, 2010, the Complainant's Supplemental Brief and the Respondent's Further Post - Trial Brief were received. The ALJ closed the record.

• The ALJ issued a Decision and Order on July 19, 2011 ("Decision and Order") affirming the penalty assessed against Thibeault in the amount of $50,000.

Thibeault timely appealed the ALJ's Decision and Order to the Secretary of the Department of Labor on August 9, 201 1. The Notice of Appeal stated that the sole issue on appeal is whether EBSA acted arbitrarily, capriciously or unreasonably in assessing a $50,000 penalty against the Respondent for having failed to file a complete 2006 annual report as the report did not include an audit by an IQPA notwithstanding having provided EBSA with a valid statement of reas onable cause. This Office² issued a b r iefing schedule letter on September 19, 2012. Thibeault and DOL timely filed their briefs on October 25 and November 21, 2012, respectively.

ERISA Section 502(c)(2) provides for a civil penalty to be assessed by the Se cret ar y for a plan administrator's failure or refusal to file the required annual report. The regulations provide that the amount assessed under Section 502(c)(2) of the Act shall be determined by the Department of Labor, taking into consideration the degree and/or willfulness of the failure or refusal to file the annual report . 29 C.F .R. § 2560.502c-2(b). After the Department has provided an administrator a written notice of intent to assess a penalty, the administrator may file a statement of reasonable cause regarding why the penalty, as calculated, should be reduced, or not be assessed. The statement must set forth all the facts alleged as reasonable cause for the reduction or nonassessment of the penalty. 29 C.F .R. § 2560.502c-2( e). The Department may determine that all or part of the penalty am ount in the notice of intent to assess a penalty shall not be assessed on a showing that the administrator complied with the requirements of ERISA Section 101(b )(1) or on a showing by the administrator of mitigating circumstances regarding the degree or willfuln ess of the noncompliance. 29 C.F .R. § 2560.502c-2( d). Following a review of all the facts alleged in support of no assessment or a complete or pa r tial waiver of the penalty, the Department notifies the administrator of its determination to waive the penalty, in whole or in part, and/or assess a penalty. 29 C.F.R § 2560.502c-2(g).

The rules require the AL J 's decisi on to include findings of fact and conclusions of law with reasons therefor upon each material issue of fact or law presented on the record, and it must be based upon the whole record. The penalty (if any) which may be included in the decision of the ALJ s hall be limited to the penalty expressly provided for in Section 502( c )(2 ) of ERISA, and it shall be supported by r eliable and probative evidence. 29 C. F .R. § 18.57.

It is undisputed that Thibeault did not come into compliance with ER ISA until after the hearing before the ALJ. The record also establishes that EBSA followed the law and implementing regulations in this matter. The record does not present mitigating circumstances regarding the degree or willfulness of the noncompliance ot her than those expressed by Thibeault in its² EBSA Order No. 1-08 delegates authority and assigns responsibility to the Director of the Office of Policy and Research for the review of decisions of ALJs under regulations implementing the Department's authority to assess civil penalties under ERISA Sec. 502(c)(2) and (i).

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Reasonable Cause Statement, the circumstances that were rejected by EBSA and the ALJ. The ALJ's decision met the requirements set forth in 29 C.F.R . § 18.57.

The Secretary may review a decision of an A LJ, and the regulations provide that the notice of appeal shall state with specificity the issue or issues in the decision of the ALJ on which the party is seeking review. 29 C.F.R . § 2570.69. Thibeault's sole is sue on appeal to the Secretary is whether EBSA acted arbitrarily, capriciously or unreasonably in assessing a $50,000 penalty for Thibeault's failure to file a complete 2006 A nnual Report. In seeking review, Thibeault does not state with specificity what issue in the decision of t he ALJ should be reviewed. Rather, based on the Notice of Appeal and Thibeault's br ief dated October 25, 2012, Thibeault in effect is asking the Secretary to review the case de novo to decide whether EBSA acted arbitrarily, capricio usly or unreasonably in assessing the penalty. The regulations provide that the review by the Secretary shall not be de novo proceeding but rather a review of t he record established before the ALJ. 29 C.F.R. § 2570.70. Thus, Thibeault is asking the Secretary to apply a standard of review that is not available to the Secretary when reviewing a case on appeal.

Therefore, the AL J decision is affirmed in whole, and I hereby order that the penalty amount, $50,000, be paid by the Respondent - Appellant to the U.S. Department of Labor 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 ERISA and its implementing reg ulations.