Meeting Expectations of the DOL

According to Jennifer Del Nero, assistant regional director for the DOL’s Employee Benefits Security Administration (EBSA) in Atlanta, they are:

• Act solely in the interests of the participants and their beneficiaries;
• Be prudent;
• Pay only reasonable and necessary expenses for the plan; and
• Follow the terms of the plan.

Del Nero explained to attendees of the Retirement & Benefits Management Seminar, hosted by the University of South Carolina Darla Moore School of Business, and co-sponsored by PLANSPONSOR, that expenses are reasonable only if they are necessary for the operation of the plan, and are not excessive for the service received. “The main thing to remember about ensuring reasonable expenses is document, document, document,” she said. Plan sponsors should keep records about decisions to select products and providers and decisions to keep products and providers.

When it comes to following the terms of the plan, there are three areas of concern for the DOL, Del Nero said:

• Loans – the plan document may specify reasons for which participants may take a loan, but some plan sponsors do not follow this, she said;
• Forfeitures – the plan should state whether they are allocated—and how—or used for expenses (see “Administering Retirement Plan Account Forfeitures”); and
• Mandatory cash outs – the plan may call for terminated participant balances of less than $1,000 to be cashed out or balances less than $5,000 to be rolled into a safe harbor IRA, but some plan sponsors are not doing so, she said.

“Do not exercise personal discretion when the terms of the plan are clear,” Del Nero told seminar attendees.

Del Nero shared tips to help plan sponsors avoid common problems:

• Understand your plan and your responsibilities;
• Carefully select service providers;
• Make timely contributions;
• Avoid prohibited transactions; and
• Make timely reports to government and disclosures to participants.

One note about disclosures to participants Del Nero offered: The 404(a)(5) participant disclosure rules do not meet Employee Retirement Income Security Act (ERISA) Section 404(c) requirements (see “404(c) in the Modern World”). “They line up pretty well, but plan sponsors still need to make sure they are complying with all of 404(c),” she said.

When selecting service providers, Del Nero recommended plan sponsors should do the following: 

• Obtain information from more than one service provider;
• For valid comparison, make sure to collect the same information from each provider;
• Consider “bundled” and “unbundled” services;
• Check a service providers license, if required (attorney, accountant, etc);
• Understand terms of contracts;
• Document processes used in reviewing and selecting service providers; and
• When renewing contracts, repeat the selection process and confirm that facts on which initial selection was made have not changed.

Plan sponsors must also monitor their service providers to make sure the services are being delivered as agreed. Del Nero reminded attendees that the plan fiduciary may be liable if the service provider fails to carry out its responsibilities.

If mistakes are made, the DOL offers a voluntary fiduciary correction program. Del Nero said there are 19 transactions that can be corrected using this program.

Del Nero warned that if a plan sponsor receives a letter from the DOL with an offer to voluntarily correct a mistake, it should never use the word “settle” in its response. “If you ‘settle,’ you pay a penalty, which goes to the IRS,” she said.