By: Mark Casciari, Jim Goodfellow and Chris Busey
Few things in life are certain; for Benjamin Franklin, it was death and taxes. According to two officials from the Department of Labor’s Employee Benefits Security Administration (EBSA), the division tasked with enforcing ERISA, we should now add an assertive EBSA. EBSA claims jurisdiction over all plans across the United States that are governed by ERISA, which manage over $7 trillion in assets and cover over 141 million employees. EBSA employs roughly 250 people in Washington, D.C., and 750 other people nationwide, in ten regions that are aggregated into five districts.
On May 17, Marc I. Machiz, Director of the EBSA’s Philadelphia Region, highlighted one ERISA violation that his region plans to focus on in the coming months. His region is now making a concerted effort in ferreting out excessive fee cases where retirement plan participants appear to be paying higher aggregate fees than others. Machiz expects that the investigations will attempt to determine who is as fault for excessive fees and why. Queried Machiz in his talk: “What do the disclosures look like? What do the fiduciaries look at? Is there something that justifies the high fees? Is it the fault of the disclosures? Is it the fault of the service provider? Is it the fault of the named fiduciary plan sponsor?” Machiz noted that this project will be easier to undertake given the data on plan costs that must now be provided to EBSA under new Department of Labor regulations. He stated that “in all of our cases where we have 401(k) plans as part of our investigations, we’re asking to see those disclosures.”
This investigatory sentiment was echoed by Phyllis Borzi, EBSA’s Assistant Secretary for Employee Benefits Security, in a May 21 webinar. Borzi remarked on a few of the administration’s specific initiatives–targeting plan sponsors who fail to allocate employee contributions to the plan, ensuring proper valuation of securities in ESOP transactions, protecting plan assets when the plan sponsor is in financial distress, eliminating improper and undisclosed compensation to plan advisors, and ferreting out advisors who give poor ERISA advice.
Borzi noted that many EBSA investigations begin when a plan participant reaches out to the agency with a question regarding their particular plan. Questions are referred to one of EBSA’s Benefit Advisors, who are ground-level employees charged with answering basic questions–from plans and participants–and with conducting preliminary investigations into complaints. An investigation can encompass witness interviews and discovery requests, as well as follow-up interviews and requests.
If a Benefits Advisor uncovers what it considers to be a violation, EBSA encourages a voluntary correction. Borzi stressed that EBSA’s goal is to ensure compliance, and not to pursue penalties. She advised that the agency will work with plans and plan providers to remedy any concerns raised by a complaint. Borzi said that roughly 220,000 complaints were resolved informally by Benefits Advisors in 2012.
Borzi said that if an informal resolution cannot be reached, the Benefits Advisor refers the matter to EBSA’s investigators, who in turn will run through a “checklist” looking for ERISA violations. EBSA employs roughly 450 investigators, who are cross trained in both civil and criminal enforcement.
These presentations present a few takeaway for employers and plan sponsors. First and foremost is that an EBSA investigation into a complaint can develop into a wide-ranging investigation into issues wholly unrelated to the initial complaint. Borzi specifically noted that EBSA may expand its investigation beyond the scope of any complaint. The investigation also may morph into a criminal case, which would be prosecuted by the local U.S. Attorney’s Office.
Another important take away is that EBSA may investigate in the absence of a complaint. Triggers may be a Form 5500. In other words, EBSA may be after you even if a participant is not.
Engaging in voluntary compliance should be seriously considered, but only with the aid of legal counsel of course.