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March 26, 2012 at 08:00 PM
Prominent retirement planning officials are warning advisors to make sure that the retirement plans they advise are compliant with Department of Labor rules, as the DOL’s regulatory arm responsible for policing these plans is cracking down.
So far this year, the DOL’s Employee Benefits Security Administration (EBSA) has significantly raised its enforcement efforts in what Andy Larson, director of the Retirement Learning Center, says should serve as a wake-up 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 or convictions. DOL also wants to increase the number of its enforcement personnel from 913 to 1,003 this year.
Larson says those EBSA enforcement numbers are “astonishing” and warns 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. When the EBSA releases its reproposed 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, Larson said, advisors 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 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,” 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 may 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.”
