More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
The Department of Labor announced Monday that it had reached a settlement agreement with ING Life Insurance and Annuity Co. (ILIAC) that provides for a $5.2 million payment to certain retirement plan clients adversely affected by ILIAC’s failure to disclose investment gains achieved when the company failed to process requested transactions in a timely manner.
The department alleged that ILIAC’s failure to disclose its policy on reconciling transaction processing errors to retirement plan clients was a violation of the Employee Retirement Income Security Act.
Acting Labor Secretary Seth Harris said in a statement that this “settlement will restore funds to about 1,400 retirement plans and ultimately benefit hardworking Americans who are making sacrifices now in order to save for their retirement years.”
Harris continued: “All of us who are planning for retirement deserve to know how our savings and investments are being handled, how much is being charged in fees and how much these transactions impact final account balances.”
Phyllis Borzi, assistant secretary of labor for EBSA, said in the same statement that the settlement “is reflective of my agency’s commitment to enforcing requirements for transparency in the retirement savings marketplace. Failure of a plan fiduciary to disclose the revenue it received from managing retirement plans is a disservice to employers who are providing this benefit to their workers.”
The agreement announced Monday also requires ILIAC to disclose its policy on how it corrects transaction processing errors to plan clients covered by ERISA and to adopt procedures for terminating abandoned plans through the EBSA’s Abandoned Plan Program. In addition, ILIAC has agreed to pay a $524,508.73 civil penalty.
ILIAC released a statement the same day stating that the company is "pleased to have resolved this matter with the Department of Labor in a way that benefits our client plans and participants, and various stakeholders. Our longstanding policy has been to put customers in the position they would have been in had a processing error never occurred."
Under terms of the agreement, ILIAC said the company "will continue applying its policy--which was communicated to sponsors during the 408(b)(2) fee disclosures in July 2012 and again recently as part of a sponsor mailing. This resolution with the DOL enhances our broader efforts to increase transparency in the industry and help our clients better understand how their plan services work."
ILIAC is an insurance company with approximately 35,000 ERISA-covered plan clients. It has offices in Connecticut and provides, among other things, custodial and third-party administration services to defined contribution plans that are sponsored by businesses.
“The $5.2 million that ILIAC has agreed to pay represents net gains kept by the company that resulted from the manner in which certain transaction processing errors were handled during the 2008-2011 period,” DOL said. The department alleged that this service provider’s failure to disclose its transaction error correction policy to its ERISA plan clients resulted in it receiving compensation in violation of the act.
“It has been ILIAC’s practice to keep gains derived from processing transactions that it failed to timely process as of the contract date as well as from re-processing erroneous transactions,” DOL said. “In both instances, ILIAC makes corrections using the date required by its contract. Gains and losses result when the share or unit value differs between the contract date and the actual trade date. Any gains in share or unit value between the contract date and trade date are kept by ILIAC, whereas ILIAC is obligated, by contract, to make plans whole for any losses.”
The disclosure, DOL said, also will state that ILIAC will track the effect of the corrections for each affected plan on an annual basis and will make that information available to its ERISA plan clients. "ILIAC will acknowledge in the disclosure that any gains it keeps as a result of the policy constitute additional compensation for the services the company provides and it will report such compensation in accordance with ERISA Section 408(b)(2)," DOL said.
According to the settlement, ILIAC also will ensure that any plans deemed to have been abandoned will be properly terminated. It will attempt to contact the sponsor of each such plan, and if its efforts are unsuccessful, ILIAC agrees to become that plan’s qualified termination administrator.