The DoL’s Office of Inspector General (OIG) said the narrow definition of a fiduciary and the lack of regulations dealing with conflicts of interest has hampered EBSA’s enforcement program. The OIG recommended that EBSA broaden the definition of a fiduciary for investment advisers, and develop regulations requiring disclosure of all conflicts of interest and consideration of conflicts of interest in selection of service providers.
According to the OIG, the Assistant Secretary for EBSA agreed with its findings and recommendations.
The audit found that EBSA has taken several actions to evaluate and reduce risk of harm to plan participants and beneficiaries from conflicts of interest in service providers, including:
- developing two new regulations regarding fee determinations and disclosures and is requiring this information be reported to EBSA;
- following up on the 2005 SEC report on conflicts of interest and initiating 12 specific investigations;
- working with the SEC to develop guidelines for plan fiduciaries to use in selecting and monitoring specific service providers; and
- implementing the Consultant Adviser Project, which concentrated resources on improper, undisclosed compensation by certain service providers.
The OIG said that while these actions go a long way toward creating transparency in plan activities and improving protections for plan assets and participant benefits, EBSA needs to do more to protect plan participants and beneficiaries from conflicts of interest in service providers. Specifically, EBSA needs to address other critical regulatory areas, such as broadening the definition of fiduciary status for investment advisers, requiring disclosure of all conflicts of interest and consideration of these conflicts of interest by plan fiduciaries when selecting service providers.
The report said the narrow definition of a fiduciary and the lack of regulations dealing with conflicts of interest has hampered EBSA’s enforcement program. For example, while the SEC reviewed 24 pension service providers and took action on 13 instances of inadequate disclosure of conflicts of interest, EBSA, using its regulations, could not take any enforcement action on the inadequate disclosure to pension plans.The audit report is here.
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