DOL Cracks Down on Retirement Plan Advisors for Fiduciary Negligence

Larson recommends that “the plan sponsor should be asking advisors what they can do to help my plan comply with the DOL rules.” Astute service providers, he says, will make sure “they have tools and mechanisms to help employers minimize their DOL liability.”

Kevin Watt, VP of defined contribution at Security Benefit, agrees that for advisors, the big question now in the ERISA world is whether “they are a fiduciary or are not.”  “There’s a seismic shift happening” and a “clear and present dividing line that’s occurring” within firms “that you’re either going to be an expert and be a fiduciary advisor named to the plan or you’re going to need to bring solutions to the table to keep you out of that role.”

EBSA recently launched an expanded “regulatory impact analysis” to assess the impact of the department’s reproposed fiduciary rule on ERISA plans and IRAs. Industry trade groups were asked by EBSA’s Office of Policy Research on Dec. 15 to voluntarily assist EBSA in its fact-finding mission. In a meeting January 24, a number of those groups suggested that complying with the request would be difficult; the DOL afterwards, nevertheless, set a deadline for those groups to submit data by Feb. 24.

Among the groups opposed to the redefinition of fiduciary is the Financial Services Institute (FSI), which found in a recent poll that 72% of its independent broker-dealer advisor members opposed DOL’s efforts on the matter. In a recent blog for AdvisorOne, FSI CEO Dale Brown (left) called DOL’s proposal a “misguided effort to expand their definition of fiduciary such that average Americans would have a difficult time finding affordable advice for their Individual Retirement Accounts.”

Columbia Management Learning Center warned plan sponsors in a recent white paper that they have a “fiduciary responsibility to keep their plan in compliance with DOL rules and regulations at all times.”

Because of the increased number of DOL enforcement staff, “the chance that the DOL could audit your plan is increasing,” the white paper warns. “There is every indication the DOL is escalating audits of small plans,” the paper says.

The paper also notes that during 2010, the DOL audited more than 3,100 plans and found that:

• More than 73% of the plans were required to restore losses to the plan or take another type of corrective action to correct plan deficiencies.
• 96 individuals (e.g., plan officials, corporate officers and service providers) were indicted for offenses related to their plans.
• From the audits, we can conclude that a very small percentage of plans have true “bad guy situations”; the majority of violations generally come from oversight, errors and omissions by plan sponsors.