So far this year, the Department of Labor’s Employee Benefits Security Administration (EBSA) has significantly raised its enforcement efforts in what Andy Larson, director of the Retirement Learning Center, said should serve as a wakeup call to advisors who advise retirement plans and plan sponsors.
In 2011, EBSA said it had closed 3,472 civil cases and obtained monetary results of nearly $1.39 billion. EBSA also closed 302 criminal cases that resulted in 129 individuals being indicted and 75 cases being closed with guilty pleas and/or convictions. DOL also wants to increase the number of its enforcement personnel from 913 to 1,003 this year.
In an interview with AdvisorOne, Larson called those EBSA enforcement numbers “astonishing,” and warned that many advisors are surprisingly still unaware that the DOL has jurisdiction over them.
What’s the biggest area EBSA is zeroing in on? Fiduciary negligence. EBSA is “seeing very high levels of non-compliance with fiduciary” duties. And when the EBSA releases its re-proposed fiduciary rule in the first half of this year, the rule “will affect advisors and their fiduciary role” not plan sponsors, Larson says.
In light of this, advisors, Larson said, should ensure they have a “strong documentable fiduciary process.”
As Larson notes, since the Employee Retirement Income Security Act (ERISA) was put into place, DOL and the Internal Revenue Service’s (IRS) Employee Plans Unit have had joint authority “to ride herd” over retirement plans. But service providers have gotten accustomed to the IRS taking the lead in enforcement actions, and have failed to notice over the last two years that the EBSA “is showing up through the unlocked back door and finding problems and issues,” Larson says.
Because the IRS has been the primary enforcer of ERISA rules, “service providers have developed their models to include mechanisms with IRS requirements,” but have failed to include “DOL type protections in their service models,” Larson says.
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.”