The Department of Labor (DOL) announced today a $5.2 million settlement agreement with ING Life Insurance and Annuity Co. (ILIAC) that will be paid to certain retirement plan clients of the company. The action stems from ILIAC’s undisclosed practice of keeping investment gains realized when it failed to process requested transactions in a timely manner, states the DOL.
According to a statement from the department, the amount represents net gains pocketed by the company due to how certain transaction processing errors were handled between 2008 and 2011. Failing to disclose its policy on reconciling transaction processing errors to retirement plan clients resulted in ING receiving compensation in violation of the Employee Retirement Income Security Act, or ERISA, DOL contends.
Acting Secretary Seth D. Harris stated that the settlement will restore funds to roughly 1,400 retirement plans. ILIAC has 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 business organizations.
“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. 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,” detailed the DOL in its announcement of the fine.
“This settlement is reflective of my agency’s commitment to enforcing requirements for transparency in the retirement savings marketplace,” assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi said in a statement. The DOL’s Employee Benefits Security Administration (EBSA) oversees retirement plans “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.”
EBSA is focused on the fiduciary duty of plans and many insurers are watching to see if EBSA allows definitive safe harbors for new annuity guarantee products–some plan sponsors reluctant to offer guaranteed income products because of EBSA’s strict interpretation of fiduciary. Insurers want to offer a wider array of new retirement solutions to 401(k)s.
According to the agreement:
- ILIAC must disclose its policy on how it corrects transaction processing errors to plan clients covered by ERISA. Its transaction policy must be presented to current and prospective ERISA plan clients in writing. Current plan clients have the opportunity to object to the policy within 30 days of receipt. Prospective plan clients will be informed of the policy by way of its incorporation in ILIAC’s contracts and service agreements.
- The disclosure 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.
- In addition, 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).
- ILIAC has agreed to pay a $524,500 civil penalty.
- ILIAC will further adopt procedures for properly terminating abandoned plans through the Employee Benefits Security Administration’s Abandoned Plan Program. If the company attempts to contact the sponsor of an abandoned plan, but is unsuccessful, ILIAC will then become that plan’s qualified termination administrator.
ILIAC issued a statement in which it said, that the settlement with the DOL “enhances our broader efforts to increase transparency in the industry and help our clients better understand how their plan services work.”
“Under terms of the agreement, ING Life Insurance and Annuity 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,” the ILIAC statement said.
The settlement was the result of an investigation conducted by EBSA’s Boston Regional Office. It was reached with the assistance of the Labor Department’s Regional Office of the Solicitor in Boston.
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