Is the audit of the SAG pension and health plan really “much ado about nothing”?

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.

6 thoughts on “Is the audit of the SAG pension and health plan really “much ado about nothing”?”

  1. In this article, Diamond mentions the word “routine” four times in his article, emphatically, in an attempt to color SAG P&H’s attitude toward the audit as somewhat casual or off-hand. Diamond spends half the article trying to take SAG P&H to task for SAG P&H’s seemingly lackadaisical drift through a ho-hum process. I can assure you, that is NOT what SAG P&H stated at all – not in the least stated or implied. SAG P&H said: “Field audits of multiemployer plans of this sort are routine for benefit plans across the country.” Using the word “routine” once. The audits ARE important, and SAG P&H states they have always given them appropriate attention, and these field audits HAVE become “routine” for multi-employer plans.

    Secondly, Diamond erroneously states: “…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…” Since when is it a “time of weakness” to submit your pension and health plans to the intense scrutiny of a field audit? I would say that, in full confidence of the plan’s strength and integrity, SAG said: “Let’s do this.”

    Third, the plan never admitted “weaknesses in internal controls.” It did NOT take Simmons’ letter begging for a settlement to discover the case. It had long been discovered and investigated and paid for by insurance by the time Mr. Simmons was out the door.

  2. I worked at the Plans. When Karimi left the company, the CEO put out an email and said Karimi left for “family reasons” in 2008 and now everyone knows that is not true. The emblezzment had to be close to 10 mill or even more but it’s very difficult to track. At the time I was there, Karimi was locking up these huge IT contractors with vendors for millions and millions of dollars and had over paid IT contract workers every where. In fact, after he was let go, he was probably still collecting because SAG used the same vendors. The IT dept had the largest budget of all depts now we all know why.

    EDITOR: I have recommended that this commenter report any allegations to the Department of Labor.

  3. Just returned from SAG-Aftra’s so called information meeting.Lots of scripted propaganda spewed forth from a dais holding the power and pretentious pro merger speakers but little,if any,information.I brought up the issue of the reported embezzlement of anywhere between 5 to 10 million dollars in SAG’s pension plan.A trustee of the plan ,on the dais,was adamant that the 5 to 10 million dollar figure is a fabrication put out by bloggers .He stated in 2008 two million was embezzled and insurance coverage put the lost money back in and this is old news.

  4. Third, the plan never admitted “weaknesses in internal controls.” It did NOT take Simmons’ letter begging for a settlement to discover the case. It had long been discovered and investigated and paid for by insurance….

    EDITOR: This comment has been edited to prevent Mr. Ligon from being accused of slander but not for accuracy. SAG Watch reported that the plan admitted weaknesses in internal controls and as my post indicated, a new layer of controls has been added.

  5. …. In his article, Diamond mentions the word “routine” four times in his article, emphatically, in a specious attempt to color SAG P&H’s attitude toward the audit as casual or off-hand. Diamond spends half the article taking SAG P&H to task for seemingly SAG P&H’s lackadaisical drift through a ho-hum process. That is NOT what SAG P&H stated at all. Not in the least stated or implied. They said: “Field audits of multiemployer plans of this sort are routine for benefit plans across the country.” They ARE important, and SAG P&H states they have given it appropriate attention, and they HAVE become “routine” in this area.

    Secondly, Diamond states: “…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…”

    Since when is it a “time of weakness” to submit your pension and health plans to intense scrutiny? I would say that, in full confidence of the plan’s strength and integrity, SAG said: “Let’s do this.”

  6. The audit with the Boston SAG Office is probably due to the fact that SAG P&H have know for at least 2 years that they are not in compliance with the MA State Health Plan requirements. The SAG P&H Staff and the SAG Trustees (ALL OF THEM) have known that this problem has existed and have FAILED to make sure that the SAG Members of MA are properly and LEGALLY covered.

    http://www.sag.org/files/sag/documents/Boston_NewEnglander_March2011.pdf

    Page 2

    SAG Health Plan Update

    As we previously reported, beginning January 1, 2011, SAG Health Plan coverage will no longer meet the standards set by the Commonwealth Health Insurance Connector (the Connector). Under Massachusetts state law, residents whose insurance does not meet the standards will incur a state- levied fine. Please note that any potential fine will be due April 15, 2012. Tax filings for April 2011, are not affected.
    This problem occurred last year. Working with the Plan Trustees, the portions of the plan necessary for Massachusetts members to avoid the state fine were reinstated. This year, however, the new federal healthcare law prevents the Plan from extending the necessary benefits to Massachusetts members without extending those benefits to all members nationwide which would increase the Plans operating deficit and adversely affect benefits for all members.
    We then asked the Trustees to offer our members the option to purchase supplemental coverage to meet the state standard. Unfortunately, the Health Plan is not able to offer that solution.
    We next turned to the State for a remedy. The Connector was asked to grant a blanket waiver for all 2011 participants. That request was denied. We then pursued the option of state supplemental coverage to meet the MCC state standard. Unfortunately, that too was denied.
    Rest assured that our advocacy efforts with the state and with the Fund will continue and we will update our members about our progress. In the meantime, here’s what you should know. Plan I, Plan II, Lower Cost Self-Pay for Former Plan II Participants will not meet state standards in 2011. We believe the Lower Cost Self-Pay Plan for Former Plan I Participants will meet state standards. We are awaiting confirmation of that from the state.
    From the Connector we learned that participants may apply for individual waivers from state income tax penalties. The Connector will grant waivers to residents who demonstrate that there is no available affordable coverage as defined by the Connector. The Connector may grant waivers to Plan I participants who do not have dependent children and therefore, have no need for maternity coverage for dependent children. Participants in all SAG Plans are encouraged to apply for a waiver which must be submitted by April, 2012.
    If you have questions about state standards, including penalties that may apply and/or if you want to learn more about the waiver process, contact the Connector at (877) MA-ENROLL, or visit the website at http://www.mahealthconnector.org.
    NOTE: AFTRA Health coverage is in compliance with the state standards.

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