More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
The Department of Labor has a new focus on “major cases,” such as fee disclosure.
“We’re asking for more information” regarding fee disclosure, said Jeff Hinman, deputy director of DOL’s criminal enforcement.
Both Hinman and ERISA attorney Bruce Ashton, a partner with Drinker Biddle & Reath, gave attendees at the American Society of Pension Professionals and Actuaries annual meeting in National Harbor, Md., just outside Washington, a detailed description on Monday of how they should prepare for a DOL investigation. They answered such questions as: What triggers a Department of Labor investigation? What will DOL ask for during one? And how should retirement planning officials handle such investigations?
Ashton told retirement planning officials that while they tend to view Employee Retirement Income Security Act violations as a “civil matter, … Jeff’s presence here is the signal that there are criminal aspects of ERISA, and they can’t be ignored.”
Criminal investigations usually involve issues where there is a “badge of fraud, concealment, false statement, or lack of authorization,” Hinman added, and that these types of criminal acts can occur in any type of ERISA violation.
When the DOL initiates an investigation, Hinman said, “we usually can’t tell you what we are looking for but you’ll get an idea by the information we are requesting.”
Warned Ashton: “You have to cooperate with a DOL investigation. You have to turn over documents.”
Following are the top triggers of a DOL investigation, what DOL is looking for, the investigation process and how retirement planning officials should handle an investigation.
The most common trigger of a DOL investigation is participant complaints. Others include Form 5500 reports that raise questions, bankruptcy, unfavorable media coverage, and referrals from other agencies, particularly the IRS.
“Most of our cases begin with participants calling in” because they are not happy with some issue, Hinman said.
The DOL is looking for violations such as:
- Untimely deposits of employee deferrals
- Improper payment or allocation of payments
- Failures to follow plan’s Investment Policy Statement
- Self-dealing by employer or other fiduciaries.
The investigation process starts with an initial letter from the department, informing the plan sponsor that an investigation will be conducted at the sponsor’s offices on a specific date.
“When it comes to criminal, though," Hinman said, "you may not get a letter; we may just show up.”
The letter will also include a document request and interviews with key plan personnel.
DOL generally requests an enormous number of documents — including information on who is the plan fiduciary, and other documents like the 5500s.
Ashton said the DOL investigation was usually done in three steps: fact finding and request for information; review and analysis and initial findings by the investigator; and findings and negotiation, in which DOL issues an initial findings letter and requests voluntary correction, which requires a response and action.
How do you handle an investigation (on the civil side)?
Plan sponsors can request an extension if necessary, clarify the scope of the document request (ERISA counsel can assist with this), deal with ambiguities in requests, inform key personnel of the investigation and designate a knowledgeable contact person, and deal with the in-office interviews.
Check out Bill to Kill Fiduciary Rules by SEC, DOL Heads for House Vote on ThinkAdvisor.