Year after year, the Employee Benefits Security Administration (EBSA) agency of the Department of Labor (DOL) puts forth great effort to promote compliance among retirement plans. This year will be no different as the EBSA has indicated it seeks to promptly detect, pursue and correct violations, and to aggressively pursue tips and complaints from the public. A recap of the EBSA’s 2016 enforcement results follows, along with new initiatives for 2017.
Am I affected?
As a plan sponsor, you have a fiduciary responsibility to keep your plan in compliance with DOL rules and regulations at all times. You could be held personally liable if you fail to do so.
The number of civil investigations decreased slightly during fiscal year (FY) 2016; however criminal investigations increased. These results demonstrated the EBSA’s ability to effectively target ERISA violations. The EBSA closed 2,002 civil investigations and 333 criminal investigations, in which it found that:
- Over 67% of the plans were required to restore losses to the plan or take another type of corrective action to correct plan deficiencies.
- Ninety-six individuals (e.g., plan officials, corporate officers and service providers) were indicted for offenses related to their plans.
From the investigations, we can conclude that a very small percentage of plans have true “bad guy” situations; the majority of violations generally come from oversight errors and omissions by plan sponsors.
In its budget for FY 2017, the EBSA requests 846 full-time employees for enforcement and participant-assistance activities, which could increase the likelihood of your plan being investigated by the DOL. Specifically, the DOL intends to concentrate enforcement resources on its Major Case Enforcement Initiative where EBSA will target areas that have the greatest impact on the protection of plan assets and participants’ benefits, for example, professional fiduciaries and service providers with responsibility for large amounts of plan assets and benefits.
What do I need to know?
As a plan sponsor, it is your responsibility to fully understand the features of your retirement plan and the rules surrounding its operation.
According to the DOL and IRS, common plan errors include:
- Late or missed Form 5500 filing
- Late or missed deposits of employee salary reduction contributions
- Participant loan failures (e.g., loans that exceed the maximum permitted dollar amount)
- Failure to timely amend the plan to keep it updated with changes in the law
- Plan operational errors arising from the failure to follow plan terms (e.g., an employee who meets the plan’s eligibility requirements but is not allowed to participate)
- Specified plan prohibited transactions (e.g., sales or loans between the plan and a party in interest)
- By monitoring your plan on an ongoing basis, you can avoid many of the problems typically discovered during a formal plan audit or fix errors by following an IRS- or DOL-sponsored correction program.
You could face severe monetary penalties if you fail to properly operate your plan. Even worse, your plan could lose its tax-favored status if certain defects exist.
According to the EBSA’s FY 2017 budget request, new initiatives the EBSA will focus its resources on include:
- Conflict of interest rule — investment advice
- Revision of the Form 5500 Series and implementing regulations under ERISA
- Savings arrangements established by states for non-governmental employees
- Amendment of abandoned plan program
- Adoption of amended and restated voluntary fiduciary correction program
Fortunately, there are tools available to assist you in determining your plan’s level of compliance before a DOL audit strikes. If you discover plan deficiencies, your company will likely incur expenses trying to make them right. You can be sure the cost of fixing a problem on your own will be less than the potential expense if the DOL or IRS discovers the defect during an official audit.
For additional information about the DOL fiscal year 2016 enforcement activity, visit https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/ebsa-monetary-results.pdf
To review the DOL Strategic Plan fiscal years 2014-2018, visit https://www.dol.gov/sites/default/files/documents/agencies/osec/stratplan/fy2014-2018strategicplan.pdf
To review the Major Case Enforcement Initiative, see the fiscal year 2017 Budget, visit https://www.dol.gov/sites/default/files/documents/general/budget/CBJ-2017-V2-01.pdf
If you would like a preliminary evaluation of your compliance with DOL and IRS standards, contact your financial advisor regarding an ERISA review of your plan with the help of the Learning Center. It is also extremely important to review any fiduciary deficiency with your tax professional and/or legal advisor(s).
If you discover compliance concerns with your plan, you should review the IRS and DOL correction programs with your financial advisor and take action to correct them.
There is also guidance on how plan sponsors may correct plan errors through the IRS 401(k) Plan Fix-It Guide located at https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide.
What action should I take?
Talk to your financial advisor regarding:
- Conducting a self-audit of your plan — the first step might be an ERISA review, which is offered exclusively through the Learning Center.
- Documenting all compliance efforts, plan issues and correction methods as safeguards should the IRS or DOL ever audit your plan.
Heidi LeMieur a DCIO Senior Consultant at Columbia Threadneedle Investments.
She can be reached at HLeMieur@retirementtlc.com.