Closed Courts, Missing 401(k) Participants Confront DOL Agency: GAO

“The GAO report attributes a 62% decrease in the enforcement cases closed annually over the 10-year period, accompanied by a 126% increase in the annual dollar amount of recoveries, primarily to the major case emphasis,” the Eversheds attorneys said.

Major cases may include investigations of service providers with many plans and plan participants or systemic problems in the plan that may require significant asset management or administrative reforms, the attorneys state. Total monetary recoveries for participants more than doubled from fiscal years 2011 through 2020, according to the GAO report.

“The focus on major cases, which began in 2013, accounts for much of that growth, with nearly 80% of total recoveries from all sources coming from major cases in 2020,” the Eversheds attorneys said.

According to EBSA officials, major cases are more resource-intensive; therefore, in that same period, the total number of investigations that were closed dropped by more than 62%.

“The DOL’s more selective and targeted enforcement activity in recent years is in marked contrast to the explosion of private litigation that is engulfing pension and health plans over all manner of issues — fees, disclosures, conflicts, investment performance, benefits administration,” said Brian Boyle, a partner at O’Melveny & Myers LLP in Washington who specializes in ERISA, in an email to Investment Advisor. “If one assumes that DOL has less institutional interest in targeting plans that the ERISA plaintiffs’ bar is already swarming, then the list of available investigation targets is going to continue to narrow.”

Labor Department actions against registered investment advisors, Boyle continued, “have historically been less common than other DOL enforcement activity, and that hasn’t changed in my estimation. Consistent with the overall trend in ERISA litigation, though, some of the actions DOL has commenced more recently rest on increasingly audacious theories that put big numbers in play.”

More ‘Missing’ Participants Investigations

The GAO report notes that while an increase in job loss may lead to an increase in missing retirement plan participants, “failing businesses may struggle to keep updated records for participants vested in company retirement plans.”

EBSA officials told GAO that the agency focuses on the participants “who may face financial hardship if they don’t receive their promised retirement benefits on time and without excessive fees, especially during economic downturns.” As a result, GAO said, “the increase in missing participants may lead to a greater need for related enforcement investigations.”

Retirement plan administrators “have an obligation to keep accurate and up-to-date records on plan participants and take appropriate actions to find missing former employees, so the plan can pay promised benefits when they come due,” GAO said.

EBSA officials told the GAO that “many missing participants are not aware of their benefits and, without the plan’s diligent efforts, may never receive their benefits,” the report states.

“Several stakeholders mentioned the challenge of locating missing participants, which existed prior to COVID-19, and their desire for additional guidance about the steps plans must take to locate them,” the GAO said.

These stakeholders expected the increase in job loss due to the pandemic to lead to more missing participants, which would make finding them even more difficult, the GAO said. In early January, EBSA issued missing participants guidance that set out a range of best practices fiduciaries of retirement plans, such as 401(k) plans, should consider as steps their plan could take to help reduce missing participant issues and ensure that plan participants receive promised benefits when they reach retirement age.

In fiscal 2020, EBSA reports that its investigators helped missing and nonresponsive participants recover benefits with a present value in excess of $1.4 billion.