Actually, newly enshrined Assistant Secretary of Labor Phyllis Borzi (see Borzi EBSA Nomination Approved by Senate ) told the audience at the ASPPA/DoL Speaks conference in Washington, D.C., last week that, while her boss (Labor Secretary Hilda Solis) is fond of the new sheriff mantra, she prefers to say that now there is a sheriff in town—and one that talks as though it will use both a carrot and a stick.
While early bets are that the new leadership at DoL will set a different course (some say a very different course) than its predecessors, Borzi laid out a new and vigorous plan for the Employee Benefits Security Administration (EBSA) that she now heads. “Right now we have a full plate,” she acknowledged, but it was clear that enforcement of the law and promises made will be a driving focus. “The previous Administration focused on compliance assistance,” she noted, “but that’s only good if it is combined with strong enforcement.”
Borzi noted that EBSA had racked up more than $1 billion in recoveries for ERISA plans in 2008, with some 3,500 civil investigations, and that the agency had pursued litigation in 91 cases (see ” EBSA FY 2008 Enforcement Reaps $1.2B, 101 Indictments “). On the criminal side, she said that 212 criminal investigations had been closed, including 101 cases against individuals. One of those individuals, she reminded the audience, was none other than Michael Vick, who had used assets in a 401(k) plan to pay his legal fees (see ” Michael Vick Sued for Prohibited Pension Transfers “).
As for 2010 goals, Borzi cited a new national priority—the “delayed remittance of contributions.” She also said that there would be a “new contributory plan criminal project” that would focus on criminal investigations of individuals involved with the embezzlement of plan funds, including those who withhold money from worker paychecks without depositing them, and those who knowingly file false 5500 information.
Among the other priorities, Borzi noted:
- Multiple-employer welfare arrangements (MEWAs) involving health-care fraud. Borzi said that the people who put these together are frequently "not skilled in risk management"—or "crooks."
- A rapid ERISA action team (REACT) project focused on participants who are deemed to be at greatest risk, such as those whose employers are in bankruptcy. The point would be to ensure that legal obligations are upheld to those workers.
- A focus on Employee Stock Ownership Plans (ESOPs), typically with valuation issues.
- A CAP, or consultant adviser project, focused on "improper, undisclosed compensation to plan advisors." The project, which she said was in its third year, will be expanded to include situations involving those who "use their fiduciary status to increase their compensation," including disability and life insurance plans.
And, while enforcement was clearly a focus of her remarks, Borzi said that while there are "some people that think that employers don't want to do the right thing—I'm not one of those people."
On the regulatory front, Borzi said that a priority would be to finish the work started by the prior Administration, with the "first out of the box" to be investment advice. "We share concerns that workers will benefit from quality investment advice," she said—and then proceeded to express a different sense of what would fulfill that definition.
She noted that the final regulations on investment advice—published in January (see White House Executive Order Snares Fee Disclosure, Advice Regs ) —were criticized by some as going too far. She said DoL was "taking a fresh look, working to bring the regulations closer" to the provisions in the Pension Protection Act (in an aside, she noted that PPA was "an oxymoron if ever I heard one").
"We're very close to completing that review," she said, and the Department hoped to announce a "substantive decision in the near future."
It seems likely, however, that the final product will be different from the last version. Borzi said that the most likely outcome of the process would be a complete withdrawal of the regulations (rather than trying to amend the current version) and a new issuance, followed by what she described as a "fairly short comment period." She acknowledged the current deadline of November 18 for publishing final regulations (following the January hold, and two subsequent deferrals while the DoL solicited and absorbed comments) but noted, "Nothing is simple."
On the topic of investment advice, she noted concern about reports that the SunAmerica opinion is being interpreted "very broadly," and perhaps beyond the parameters permitted by the scope of that opinion (which, in 2001, sanctioned a program put together by SunAmerica to offer computerized advice on funds that it managed, and on which the firm received variable compensation; see "No Exemption Required?" ). "If we get complaints of overreaching, we will investigate and take enforcement action," she said. In response to a question, she declined to mention any specific firms, noting that these were "rumors on the Hill," but nothing positive. Borzi said there is a sense that firms are using the SunAmerica opinion to get around prohibitions on conflicted advice.
Not surprisingly, fees and expenses are also a priority, and Borzi emphasized that it is "important that fees are transparent." On the specific initiatives regarding 408(b)2 and participant disclosures, she said the DoL was "moving along fairly rapidly" and described that work as "close behind investment advice," but suggested that probably meant the beginning of next year.
She said the goal was to "ensure that fiduciaries have all the information they need"—as well as participants—and that the final product should permit an "apples-to-apples" comparison.
Borzi acknowledged that the DoL hoped to issue final regulations on their February 2008 contribution timing safe harbor for small plans "soon."
On the subject of target-date funds, Borzi said that staffs from DoL and the Securities and Exchange Commission (SEC) have been talking (see Target-dates Useful, but Flawed ), and they want to "improve the ability of participants to understand how these funds operate, including "understanding what the target date actually is." This is an important issue that DoL will be looking at, and while she did not know what would finally emerge, she hoped they would have something by the end of the year.
Borzi said there was concern about the reality that most participants take their distribution as a lump sum, and that DoL was "looking for suggestions on how to encourage annuitization." She said that DoL would be working on educating participants about the importance of lifetime retirement income. "When people are given an (annuity) option, they don't take it," she admitted.
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