The U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) will make enforcement a priority in fiscal year 2010 and will address 401(k) fee disclosure, investment advice regulations and issues regarding target-date funds used as qualified default investments, the agency announced.
Newly appointed Assistant Secretary of Labor Phyllis Borzi laid out a vigorous plan for EBSA at the American Society of Pension Professionals and Actuaries/DOL Speaks conference Sept. 14, 2009, in Washington, D.C. Stating that “there’s a new sheriff in town,” Borzi implied that the Bush administration was weak on enforcement against plan sponsors and their service providers, something she will make a priority. “The previous administration focused on compliance assistance,” she noted, “but that’s only good if it is combined with strong enforcement.”
Enforcement activities will include a “contributory plan criminal project” to prosecute violators who fail to forward participant contributions to employee benefit plans, a program designed “to target the most egregious and persistent violations and to protect the most vulnerable employee populations by pursuing criminal prosecution of individuals who commit crimes involving contributory health and retirement plans,” she said.
Examples of violations that would fall under this enforcement project include embezzlement of plan assets—withholding money from worker paychecks without depositing them—and knowingly filing false 5500 forms regarding employee plan contributions.
Other enforcement priorities will include addressing the problem of delayed remittance of contributions, investigating multiple-employer welfare arrangements (MEWAs) involving health care fraud, and creation of a rapid Employee Retirement Income Security Act (ERISA) action team project focused on legal action on behalf of participants who are deemed to be at greatest risk, such as those whose employers are in bankruptcy.
Revising Regulations
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” item to be investment advice. As SHRM Online has reported, DOL is dropping the investment advice regulation adopted as a final rule in the waning days of the Bush administration. The Obama administration has objected to the rule on the grounds that it would allow advisers who have a conflict of interest to provide retirement plan investment advice, arguing that fund companies and brokerage firms could exert pressure on advisers to recommend proprietary products.
The department is working to bring the investment advice rulemaking “in line with the statutory provisions of the Pension Protection Act,” Borzi said, adding that she hopes to complete the necessary review by the extended Nov. 18 deadline and to reissue it as a proposed rule with a short comment period.
She stated that the regulations on investment advice—published in January 2009—went too far in permitting investment advice arrangements not specifically contemplated by the statutory exemption.
“Today’s workers will benefit from quality investment advice—advice that is both affordable and unbiased,” she said, adding that the department will take a fresh look at regulations that govern investment advice and will issue new rules.
The department hopes to complete its review of the two plan fee/expenses disclosure rulemakings in the “near future,” Borzi said, stating that it is “important that fees are transparent.” On the specific initiatives regarding ERISA section 408(b)2 and participant disclosures by fiduciaries, she said DOL was “moving along fairly rapidly” and described that work as “close behind investment advice,” but she suggested that this probably meant the beginning of 2010. 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.
“I’ve spent my career making sure these plans were simple, accurate, useful and understandable. That’s not always easy,” she said.
By the end of 2009, the department hopes to determine what actions should be taken regarding target-date funds, Borzi said. A joint hearing sponsored by DOL and the Securities and Exchange Commission was held on target-date funds on June 18, 2009. She stated that her goal was to “improve the ability of participants to understand how these funds operate, including understanding what the target date actually is.”
On the oft-discussed SunAmerica issue, relating to a 2001 DOL advisory opinion that paved the way for defined contribution plan service providers to offer advice to plan participants through an affiliated adviser using an independently developed computer model, Borzi said, “we will investigate and take action” regarding interpretations that go beyond what the department interprets as the intent and reach of its advisory opinion.
Borzi said DOL has received reports that the advisory opinion is being interpreted very broadly and that some might be going beyond the intent and reach intended by it. She added that the SunAmerica opinion was fact-specific and that advisory opinions cannot be relied on beyond the specific fact situation. “If we get complaints of overreaching, we will investigate and take enforcement action,” she said.
Borzi listed several other initiatives on deck for 2010, including:
• The Genetic Information Nondiscrimination Act.
• Mental health coverage.
• A focus on employee stock ownership plans.
• A consultant adviser project, focused on “improper, undisclosed compensation to plan advisors.”
• COBRA subsidies.
• Participant assistance outreach.
Roy Maurer is a staff writer for SHRM.
Related Articles:
DOL to Drop Bush Administration Investment Advice Rule, SHRM Online Benefits Discipline, September 2009
Borzi Confirmed as Head of Employee Benefits Security Administration, SHRM Online Benefits Discipline, July 2009
401(k) Participants Want Fee Summary, Not Detailed Disclosure, SHRM Online Benefits Discipline, July 2009
Target-Date Funds Receive Greater Scrutiny, SHRM Online Benefits Discipline, June 2009
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