Voice | Published in December 2009

Plan Sponsors Beware

The DoL investigations are coming.

By PLANSPONSOR staff | December 2009
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Illustration by Jing Wei

ERISA Protections

Prompted by the spectacular Stude­baker failure in the mid 1960s, where thousands of employees lost their jobs and their pensions, the Employee Retirement Income Security Act (ERISA) celebrated its 35th anniversary of protecting the future financial security of retired U.S. workers in 2009. ERISA is enforced by the Department of Labor’s Employee Benefits Security Administration (EBSA), which shares duties with the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC). While the IRS audits plans for participant eligibility, vesting, and funding requirements to ensure compliance, the PBGC insures defined benefit plan benefits when companies default.

Focusing on fiduciary, reporting, and disclosure requirements, EBSA conducts investigations of fiduciaries and service providers to ensure that they operate plans in the participants’ best interests. EBSA corrects violations and litigates. Its oversight authority extends to nearly 700,000 retirement plans and approximately 2.5 million health plans. These plans cover about 150 million workers and their dependents, and included assets of approximately $5.6 trillion in 2007, when the latest statistics were available. In 2009, EBSA expects to conduct 3,900 civil and criminal cases resulting in nearly $1 billion in enforcement monies.

The confluence of three factors suggests that the number of EBSA investigations and penalties will increase. The first factor is the recession. Whenever the economy dips, participants use the DoL’s toll-free telephone number to complain to Benefit Advisors about their plans. A sizable percentage of EBSA investigations begin based upon these phone calls. Although participants grumbling about plan losses will not automatically trigger an investigation, other factors mentioned while participants are complaining are “red flags” to Benefit Advisors, DoL staffers who provide technical assistance and field complaints.

Certain complaints often generate greater scrutiny by Benefit Advisors. For example, if participants have difficulty obtaining routine documents from employers, such as participant statements or summary plan descriptions, then EBSA’s concern is heightened. Additionally, EBSA is more serious whenever it becomes aware that, potentially, there is a problem with late payrolls or other troubles involving employee contributions being forwarded to fund the plan. This is especially true if the participant also is describing other financial problems that the employer is experiencing. When participants have difficulty obtaining statements that previously were readily available, EBSA becomes concerned that participant contributions may be delinquent or missing or worse, or that contributions have been used by the employer to keep the business afloat.