By Thomas D. Clough
According to a recent study by Alliance Bernstein, only 63% of all plan sponsors consider themselves to be plan fiduciaries. The cases summarized below highlight the DOL’s commitment to a rigorous enforcement of the law and underscore the need for competent guidance on ERISA compliance. While proactive retirement plan advisors are leveraging new challenges to create opportunities (e.g., educating plan sponsors on requirements, assisting with the implementation and maintenance of policies and procedures, supporting document retention and compliance reporting, etc.), many financial professionals lack the experience or commitment to assist in this regard. Because most plan sponsors rely upon their financial advisor for guidance, he/she may be interviewed as part of the DOL’s investigation.
Indeed, the DOL’s Consultant Advisor Project, which the DOL operates in connection with an information-sharing arrangement with the SEC, specifically targets the services and compensation of retirement plan advisors. If the DOL uncovers any irregularities during a routine or for-cause plan investigation, it may seek to ascertain whether a violation is systemic with respect to the financial services provider or its affiliates. Given that most broker-dealers and investment advisors do not employ in-house ERISA expertise, it is recommended that they look to outside support for education and develop specific protocols for ERISA compliance.
Excessive Fiduciary Compensation
On July 5, 2012, the Department of Labor announced that the National Rural Electric Cooperative Association (NRECA) has agreed to pay a $2.7 million administrative fine and to restore $27.3 million to three association-sponsored retirement plans. During this investigation, the DOL found that NRECA, in violation of ERISA, selected itself as a service provider to the plans, determined its own compensation, and made payments to itself that exceeded NRECA’s direct expenses in providing services to the plans.
Additionally, as part of the agreement with the DOL, NRECA has agreed not to provide administrative services to the association-sponsored retirement plans without entering into a written contract or agreement that has been approved by an independent fiduciary.
As part of its review of the written contracts, the independent fiduciary must determine:
• whether the use of NRECA to provide administrative services to the plans is prudent and reasonable;
• the categories of direct expenses that NRECA may charge to the plans; and
• the methods of calculating those expenses.
Improper Participant Loans
On July 12, 2012, a federal judge in Chicago signed a Consent Agreement between the Department of Labor and David Fensler, Anthony Monaco, and the United Employee Benefit Fund. The Consent Agreement requires the defendants to amend retirement plan documents so that they comply with the requirements of ERISA. According to the DOL’s press release, David Fensler, Anthony Monaco, and fund trustees allegedly approved at least $1.7 million in improper loans to 194 individual participants in the United Employee Benefit Fund and made no effort to collect the loans. As of December 31, 2009, none of the loans had been paid in full, and only six participants had ever made any loan payments on loans issued to them. Among other provisions, the terms of the consent order also require the plan to amend improper loan documentation, collect repayments from plan participants, or issue a 1099 to treat the loans as taxable distributions.
Improper Oversight of Plan Administrator by Plan Sponsor
On July 18, 2012, a federal judge ordered the owners of Clark Graphics, based in Columbus, Ohio, to restore $500,000 to the defined benefit and profit-sharing plans offered to its employees. Additionally, the judge ordered the owner of the former plan administrator, Pension Retirement Planning, to restore $560,000 to these same plans, less any payments made by other defendants. According to the DOL’s press release, the owners of Clark Graphics failed to monitor the actions of the plan administrator, review and reconcile plan account statements, review participant distribution calculations, and require the administrator to issue participant statements. The plan’s administrator also failed to maintain accurate records for participants in both plans.
The order also permanently enjoins the owners of Clark Graphics and the former owner of Pension Retirement Planning from serving as fiduciaries to any employee benefit plan subject to ERISA. Pension Retirement Planning provided third-party record-keeping services to as many as 51 ERISA-covered pension plans during the decade leading up to 2010, when it ceased operations.
Thomas D. Clough is the VP of Compliance and Regulatory Services at the Pension Resource Institute.
