EBSA Lays Out Enforcement Priorities Ahead of Aronowitz Hearing in the House 

The Employee Benefits Security Administration announced its enforcement priorities late Tuesday, emphasizing the Department of Labor’s recent priority shifts to focusing primarily on severe cases of misconduct. 

The notice comes before Daniel Aronowitz, assistant secretary of labor and head of EBSA, is set to testify Thursday before the House Committee on Education and the Workforce’s Subcommittee on Health, Employment, Labor and Pensions. It will be his first appearance in Congress since he was confirmed to the post in September.  

In the notice, EBSA set four priorities:  

• Focusing enforcement on “most egregious conduct and significant harm”;  

• Ensuring EBSA “does not regulate by enforcement”; 

• Requiring reviews of key enforcement initiatives by senior agency officials; and  

• Improving timeliness. 

These priorities are intended to ensure “transparency consistency, and the rule of law,” according to EBSA. They are consistent with Aronowitz’s pledge at his confirmation hearing last year to streamline retirement regulation and EBSA’s recent sub-regulatory guidance favoring employers in pension risk transfer complaints and disputes over retirement plan sponsors’ use of forfeited funds.   

Investigating Egregious Conduct 

EBSA stated it will prioritize investigations into cases that cause the greatest harm to plan participants. It emphasized a focus on breaches of the fiduciary duty of loyalty under the Employee Retirement Income Security Act, which require fiduciaries to act solely in the best interests of plan participants and their beneficiaries.  

Though EBSA stated it would still enforce breaches of the fiduciary duty of prudence, which covers more technical fiduciary errors, it would be less of a priority, since “the costliest breaches of the duty of prudence tend to be accompanied by concomitant loyalty breaches.” 

According to EBSA, cases that solely alleged prudence breaches will not be a priority. 

“EBSA must avoid cases that unfairly second-guess process-based fiduciary judgments,” the department stated. 

No Regulation by Enforcement 

EBSA, in what they say is an act of fairness, will provide guidance while seeking to limit regulation as part of its enforcement agenda, according to the priorities document.  EBSA intends to do so by issuing sub-regulatory guidance. The most recent example of this sub-regulatory guidance came in last month’s DOL proposed rule that offers a framework for fiduciaries to follow when adding alternative investments to defined contribution plan investment menus. Comments on the proposal are open until June 1. 

The EBSA memo also specified, in regards to enforcement on “adequate consideration” questions in employee stock ownership plans, “until EBSA complies with the congressional directive to provide ‘acceptable standards and procedures to establish good faith fair market value for shares of a business to be acquired by an [ESOP],’ all pending and proposed ESOP valuation investigations must be reviewed against this guiding principle of fairness.” 

In a statement, James Bonham, president and CEO of The ESOP Association, called the EBSA priorities a “major step in the right direction toward level-setting a fair regulatory environment for employee owners and plan providers.”  

Leadership Reviews 

EBSA’s leadership is also prioritizing oversight over significant enforcement actions.  

When enforcement actions are underway, senior EBSA officials must notify Aronowitz of any major activity—such as settlements or corrective actions—preferably at least two weeks before they are finalized.  

Significant enforcement issues include “novel legal theories,” potential circuit court splits, departures from prior policy or any matter deemed important by senior staff. Leadership should receive a clear summary of the matter, the rationale for enforcement and all relevant communications, EBSA stated. 

Timeliness  

EBSA’s final stated priority focuses on timeliness, insisting that routine investigations take no more than 18 months to complete unless there are “exigent circumstances” that are communicated to the Director of Enforcement. More complex cases should take no more than 30 months, unless “exigent circumstances” persist.  

As part of this effort, Aronowitz would receive quarterly updates on the status of investigations that exceed the intended timeframes. 

Aronowitz will testify in a House Education and Workforce Committee hearing titled: “Examining the Policies and Priorities of the Employee Benefits Security Administration.”