White Outlines EBSA Enforcement Priorities
At an Oct. 23 workshop session at the 2016 ASPPA Annual Conference, ERISA attorney Nicholas J. White provided a look at current enforcement activities at the DOL’s Employee Benefits Security Administration.
White, a director at Trucker Huss, APC, and member of ASPPA’s Government Affairs Committee, outlined EBSA’s national and regional enforcement priorities, and shared tips service providers can take to prepare for them.
At the national office level, White emphasized three EBSA initiatives that service providers should be aware of:
Rapid ERISA Action Team (“REACT”)
Deployed when quick action is appropriate to deal with bankrupt and financially distressed plan sponsors, REACT’s goals are to preserve plan assets, determine whether the sponsor has made all required contributions, ensure that the plan’s rights are protected, and identify the responsible fiduciaries.
Contributory Plans Criminal Project
This project targets the most egregious and persistent violators, such as employers that convert employee payroll contributions for personal or business use, third parties who gain access and use funds for their own financial gain, and identity theft or tampering with personal data records.
Consultant/Adviser Project (CAP)
The CAP is intended to ensure that plan fiduciaries and participants receive comprehensive disclosure about service provider compensation and conflicts of interest, White noted. Its focus is on potential civil and criminal violations arising from the receipt of improper or undisclosed compensation by employee benefit plan consultants and investment providers, he said, with an emphasis on whether plan fiduciaries understand the compensation and fee arrangements they enter into. In this regard, the EBSA will focus on plan investment guidelines and proper selection and monitoring of service providers.
What are CAP investigators looking for? The DOL says that investigations under the CAP will seek to determine whether the receipt of improper compensation, even if it is disclosed, violates ERISA because the adviser/consultant used its position with a benefit plan to generate additional fees for itself or its affiliates. As part of the CAP, the EBSA will also conduct criminal investigations of potential fraud, kickback, and embezzlement involving advisers to plans and participants, White said.
Form 5500 Enforcement Project
White also described the current effort by the EBSA national office focusing on Schedule H and I of the Form 5500. “In reporting financial information, plan administrators must now indicate whether any participants failed to start benefits on time and if so, the total amount paid late or still outstanding,” he said. This new requirement is buried in instructions for Schedules H and I, line 4L. Administrators answering “yes” should expect to receive a “compliance check” letter from the IRS’ Employee Plan Compliance Unit (EPCU). Additionally, White noted, DB plan administrators reporting a large amount paid late may be targeted for investigation by the EBSA.
White noted that proposed changes to Form 5500 for 2019 would clarify that the plan administrator should not respond “yes” to this question if the only benefits not paid are those owed to “missing” or “lost” participants and the plan fiduciaries have acted in compliance with FAB 2014-01 to attempt to locate the participants.
To prepare, White recommended reviewing plan terms and administrative practices regarding:
- When the plan requires terminated participants to start taking benefits
- When the plan requires actively employed participants to start taking benefits, once they’ve reached NRA or beyond April 1 of the year following the year they attain age 70-1/2
- The form in which terminated DC plan participants must take their benefits (i.e., lump sum or RMD only?)
- Steps being taken to ensure that benefits start at RBD
He also suggested answering these questions:
- How are participant ages being tracked? Is the process sufficient? Are notices being given timely regarding retirement and RBD? Do holes in employee data need to be plugged?
- What are the procedures for addressing missing participants?
- Does the plan provide for deemed forfeitures? If not, should it be amended to do so?
- Does the plan provide for a default IRA option or escheat?
- What’s the procedure for handling uncashed checks?
Regional Office Enforcement Projects
White updated session attendees on several regional EBSA efforts that are expanding beyond the regional in which they began:
- Late deposit of elective deferral contributions and loan repayments noted on Form 5500. Contact from the EBSA typically begins with and “invitation” to correct under VFCP. “There are ‘nice’ and ‘not-so-nice’ versions of this letter,” White noted, depending on which regional office involved. “When this initiative first rolled out, in Philadelphia, it was focused on large plans — but now plan size doesn’t appear to matter.” The initiative is spreading to at least Boston and San Francisco, he noted.
- Large Defined Benefit Plan Project. This project started in Philadelphia, but it’s spreading, White noted. Its focus is on procedures in three areas: locating missing participants, informing deferred vested participants that a retirement benefit is payable, and commencing benefit payments when the participants reach age 70-1/2. To address this initiative, White suggested reviewing plan procedures for locating plan participants and filling in gaps in plan records, and approaching the issues more comprehensively as part of a plan compliance review, including fiduciary training.
- Excessive Fees Initiative. This effort started in Philadelphia, said White, “but it has really become a national initiative now.” To address it, White suggested reviewing disclosures and records to determine whether participants are paying higher than average fees — Are the fees justified? If not, who is at fault?
- Benefit Distributions Initiative. This is primarily in the Boston region, White noted, but it too is spreading. The initiative was established to ensure that plan fiduciaries are acting in accordance with FAB 2014-01. Investigators determine whether plan administrators are: (1) following the terms of the plan document related to form and timing of distributions upon death, disability or termination of employment; and (2) monitoring to ensure that checks are cashed and not stale.