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Criminal ERISA Enforcement Involving Pensions and 401(k) Plans

Employer-sponsored retirement plans are subject to the requirements of the Employee Retirement Income Security Act of 1974 (more-commonly known by its acronym, “ERISA”). While ERISA violations involving pensions and 401(k) plans have the potential to lead to civil litigation – including potential class action litigation – an even greater risk of violating ERISA involves criminal enforcement by the U.S. Department of Labor (DOL) and the U.S. Department of Justice (DOJ).

The Criminal Provisions of ERISA

Like many federal statutes, ERISA includes provisions for both civil and criminal enforcement. In criminal ERISA enforcement litigation, employers, plan administrators, and other entities can face substantial fines, and company owners, executives, and personnel can potentially face federal prison time as well. The specific penalties at issue depend upon the specific statutory violations alleged, with most criminal ERISA enforcement cases related to pensions and 401(k) plans involving allegations under:

  • 18 U.S.C. Section 664 – Fines (calculated pursuant to the federal sentencing guidelines) and up to five years of federal imprisonment for theft or embezzlement from a pension or401(k) plan covered by ERISA. 
  • 18 U.S.C. Section 1027 – Fines and up to five years of federal imprisonment or making false statements or concealing facts in relation to ERISA-required documentation relevant to a pension or 401(k) plan. 
  • 18 U.S.C. Section 1954 – Fines and up to three years of federal imprisonment for offering, providing, accepting, or soliciting unlawful influence over the management of an ERISA-covered pension or 401(k) plan. 
  • ERISA Section 411 – Up to a $10,000 fine and five years of federal imprisonment for serving as a fiduciary or service provider to a pension or 401(k) plan after being convicted of theft, embezzlement, extortion, bribery, or certain other federal crimes. 
  • ERISA Section 501 – Up to a $100,000 fine and 10 years of federal imprisonment for willfully violating the statute’s reporting or disclosure requirements pertaining to pensions and 401(k) plans. 
  • ERISA Section 511 – Up to a $100,000 fine and 10 years of federal imprisonment for “coercive interference” with a pension or 401(k) plan participant’s rights under the plan.

Depending on the statutory provision (or provisions) at issue, additional penalties can include restitution to affected plan participants and a bar from holding an employment or directorship position with a plan or providing services to a plan for up to 13 years. 

In many cases, ERISA violations will constitute both civil and criminal offenses. In deciding whether to pursue civil enforcement action or criminal prosecution, the DOL and DOJ consider a variety of different factors, making the final determination on a case-by-case basis. Factors the DOL considers when evaluating the potential for criminal prosecution of a company or individual in relation to ERISA violations affecting pension or 401(k) plan participants include:

  • “The egregiousness and magnitude of the violation.”
  • “The desirability and likelihood of incarceration both as a deterrent and as a punishment.”
  • “Whether the case involves a prior ERISA violator.”

This list is not exhaustive, and it reflects the DOL’s policies, not necessarily those of the DOJ (although, as a general matter, the DOJ considers similar factors). The number of plan participants affected by an alleged violation is likely to weigh heavily in the government’s decision as well; and, in any case, the potential for criminal charges should not be discounted unless and until it becomes clear that the government’s case is civil in nature.

Examples of Criminal ERISA Enforcement Cases Involving Pensions and 401(k) Plans

While most ERISA enforcement actions are civil in nature, we have seen several criminal ERISA enforcement cases in recent years. The following are all examples of criminal ERISA cases involving pension and 401(k) plan-related violations (Oberheiden, P.C.’s attorneys did not serve as defense counsel in any of the cases discussed below): 

1. Technology Consulting Company Chairman, President, and CEO Sentenced to Prison and Restitution for Embezzlement and Tax Crimes Related to 401(k) and Profit-Sharing Plans

The chairman, president, and CEO of a technology company based in Cleveland, Ohio was convicted on six charges related to embezzling $126,000 from his company’s employee retirement plan and failing to pay employees’ withheld payroll taxes to the Internal Revenue Service (IRS). According to a news release from the DOJ, the defendant used the funds to cover personal expenses, including leases for four vehicles and $20,000 per month for the rental of two homes. A federal jury sentenced the defendant to two years in federal prison and payment of $781,000 in restitution.

2. Cleaning Services Business Owner Sentenced to Prison, Supervised Release, and Restitution for Fraud Targeting the Company’s 401(k) Plan

The owner of a cleaning services business in Leavenworth, Kansas was sentenced to 50 months in prison, five years of supervised release, and approximately $4.3 million in restitution for ERISA violations and other crimes related to her company’s 401(k) plan. According to the DOL, the defendant, “assured employees who confronted her about missing 401(k) contributions that Nationwide Life Insurance Company held their funds in escrow when, in fact, she had already used their contributions for her own benefit.” In total, she unlawfully converted $31,403 in deferred 401(k) contributions. The remainder of the $4.3 million restitution order covered lost 401(k) earnings, fraudulent loans, and identify theft.

3. Company Owner and President Pleads Guilty to Defrauding Banks in Order to Steal Employees’ 401(k) Funds

The sole owner and president of a Minnesota-based retail company pled guilty to embezzling more than $755,000 in employee retirement assets. The defendant, who also served as sole trustee of the company’s 401(k) plan, admitted to making false statements to the banks holding his employees’ assets (claiming he would re-invest the funds with another financial institution or that he was withdrawing the funds at his employees’ request) in order to withdraw those assets for personal use. He was sentenced to 42 months in federal prison.

4. Company Owner and President Sentenced for Stealing More than $750,000 from Employee Retirement Plan

The owner and president of a produce distribution company based in Long Island, New York was sentenced to seven years in federal prison for embezzling more than $750,000 from the company’s employee retirement plan. He was also ordered to pay more than $1.3 million in restitution and forfeitures. According to the DOJ, the defendant converted “almost all of the assets” in the company’s plan by transferring the assets to corporate bank accounts and then using the transferred assets to cover business and personal expenses.

5. Plan Trustee Sentenced to Prison for ERISA Violations, Embezzlement, and Bank Fraud

An ERISA plan trustee pled guilty to embezzling $787,762 from retirement plans under his management and then falsifying ERISA-required documentation in order to cover up the unlawful transactions. This included falsifying records of payments to himself in order to make them appear as payments of legitimate plan expenses and altering account statements to conceal the fact that funds were missing. Following his guilty plea, the defendant was sentenced to 30 months in prison and three years of supervised release.

While each of these cases are unique in their own way, they shed light on some important unifying facts about DOL and DOJ criminal ERISA enforcement investigations:

  • All Types of Individuals are Targeted. Company owners, company executives, board members, plan managers, trustees, and other individuals are all routinely targeted in criminal ERISA enforcement investigations. ERISA is extremely broad in its scope, and the statute contains prohibitions that apply to virtually all individuals who manage or have access to employees’ pension or 401(k) plan funds. 
  • The Amount at Issue Does Not have to Be Substantial.  When it comes to ERISA and the conversion of employees’ retirement funds, the dollar amount at issue does not have to be substantial in order for the DOL and DOJ to pursue criminal charges. In the second case discussed above, the amount unlawfully converted was just $31,403.
  • The Penalties for Criminal ERISA Violations are Severe. While it may not take a significant amount at issue to trigger criminal prosecution, the penalties in criminal ERISA cases are severe. Each of the defendants in the cases discussed above faced prison time, and most of them faced hundreds of thousands or millions of dollars in financial liability.

For individuals targeted in criminal ERISA enforcement investigations, executing a swift and strategic defense is critical to mitigating the risk of a conviction and sentencing at trial. While ERISA’s prohibitions are broad, there are also clear defenses to statutory culpability, and it will often be possible to favorably resolve ERISA enforcement matters without criminal charges being filed. By engaging experienced defense counsel to deal with the DOL and DOJ on your behalf, you can ensure that you will not unknowingly make costly mistakes and unnecessarily expose yourself to criminal prosecution.

Speak with a Federal Criminal Defense Lawyer at Oberheiden, P.C.

Oberheiden, P.C. is a federal criminal defense law firm that represents employers, plan managers, plan administrators, trustees, and other clients in criminal ERISA enforcement matters. Our attorneys have successfully represented clients in more than 40 states across the country. To speak one of our attorneys in confidence, call (214) 692-2171 or request a free case assessment online now. 

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