The United States Department of Labor (DOL) is the federal government agency responsible for administering Title I of the Employee Retirement Income Security Act of 1974 (ERISA). ERISA grants DOL authority to conduct investigation of all pension and welfare plans subject to ERISA. The Employee Benefit Security Administration (EBSA) is the arm of the DOL that performs these investigations. A variety of things can trigger an investigation. For example, EBSA may select a plan either through a random sampling or some type of targeting mechanism such as information reported in a plan’s annual report Form 5500, bankruptcy filing by a plan sponsor, or media reports concerning the plan sponsor. A participant’s complaint to EBSA can also trigger an investigation. The purpose of this communication is to inform you of what to expect and what to do when your plan is the target of an EBSA investigation.
What To Expect?
Typically, an EBSA investigation begins when you receive a letter from the agency notifying you that your plan has been selected for a review. The letter may request a date for the investigator to visit your office. The letter may also request that you designate the names of at least two individuals responsible for making plan decisions, i.e. the plan’s fiduciaries, for purposes of an interview. The letter will almost always request that you make available various plan records for EBSA’s inspection and possible retention. If the investigation is a desk audit, the EBSA may request that you mail these documents. The following is a non-exhaustive list of the types of documents EBSA will review during the course of the investigation:
• Plan document, including amendments
• Summary plan description
• Trust agreement
• Summary annual reports
• Most recent IRS determination letter
• Annual report Form 5500s, together with supporting schedules and documentations, including the audit report with the accountant’s opinion and financial statements with notes (if applicable)
• Board meeting minutes
• Plan asset statements
• Investment guidelines
• Plan investment appraisals, if any
• Expense allocation methodology documentation
• Service provider agreements
• ERISA bond certificate
• Fiduciary insurance policy (if any)
• Service provider fee disclosures
What Do I Do?
Once you receive the EBSA letter, you should immediately inform your plan consultants and/or ERISA attorneys. Chances are these professionals have been down this road before and can provide you with an enormous amount of support. Next, you should designate an individual to be responsible for communicating with EBSA throughout the investigation. It is advisable that you designate your plan professionals to deal directly with EBSA. These professionals will be able to respond quickly to any plan related questions. Moreover, they will already have the documents EBSA needs, and will be able to review these documents prior to EBSA’s review to ensure that EBSA only gets those documents that relate to the investigation. Because the key to a less painful investigation is making sure EBSA does not keep the investigation open longer than it needs to be, it is important to provide EBSA only those documents it has specifically requested and to do so in a timely manner.
So now, after spending the last two or three days in your company’s conference room taking notes, making copies, and asking questions about your plan’s operation, the investigator leaves. Weeks go by and no words from EBSA, not even an email. After each investigation, EBSA goes over the information gathered from its review of the
plan’s records and interviews with plan fiduciaries. If there are no violations, EBSA will send a closing letter indicating that no violations was found. However, if there are violations, it is EBSA’s policy to seek voluntary compliance whenever possible. Most ERISA violations are resolved through voluntary correction rather than civil litigation. Once you correct all issues uncovered during the investigation, EBSA will issue a closing letter detailing all the problems found and all corrective steps taken by the plan sponsor.
Examples of Plan Violations EBSA May Discover During the Investigation
Potential violations may include but are not limited to the following:
• Failure to timely remit employee contributions
• Use of plan assets for the benefit of parties related to the plan, such as plan administrator, plan sponsor, and parties related to these individuals
• Failure to properly value plan assets at their current fair market value, or to hold plan assets in trust
• Failure to follow the terms of the plan (unless inconsistent with ERISA);
• Failure to properly select and monitor service providers
How Do I Protect My Plan After an Investigation?
While there is no foolproof method of guaranteeing that EBSA will not find a violation during a subsequent investigation, there are certain steps that a plan sponsor can take to ensure compliance going further. Plan sponsors should have policies and procedures in place for administering the plan. These procedures can include holding quarterly meetings with your plan professionals to discuss the status of the plan, and conducting mini audits of the plan, periodically, to discover and correct any operational issues. EBSA has a program titled the Voluntary Fiduciary Correction Program (VFCP) that is designed to encourage employers to self-correct certain violations of ERISA. The program allows plan sponsors and other plan related individuals to correct violations such as fiduciary breaches and prohibited transactions.
EBSA investigations are extremely important because plan fiduciaries are subject to personal liability for fiduciary violations. The best way to protect yourself and the plan is to have proper internal controls and the right professionals working for you and your plan.
Founded in the 1950s, Carroll Consultants, Ltd. has experienced professionals with a wealth of knowledge about retirement plans. If you have any questions about this article or our services, please contact Marcie Carroll, at firstname.lastname@example.org, or (610) 225-1210.