By Carol Buckmann
Department of Labor enforcement activity resulted in higher recoveries in 2018 than in 2017. Plan fiduciaries should be paying attention.
Convincing some fiduciaries of the need to do plan compliance reviews can be a hard sell. Unlike ERISA reports and required notices, self-audits don’t have a fixed deadline and there isn’t any statutory penalty for not completing them. The negative consequences are deferred to when an auditor or investigator discovers a problem you could have self-corrected with minimal costs if you had found it earlier. Further, some fiduciaries seem to have an unrealistic assessment of the odds of getting audited or getting penalized for a violation that comes to light in an investigation.
These new statistics released by the Department of Labor should serve as a wakeup call to these complacent fiduciaries. The Department of Labor recovered $1.6 billion in 2018. There were 1329 civil investigations, 64% of which resulted in a monetary recovery or corrective action. 111 of these went into litigation. There were also 268 criminal investigations.
It might be tempting to think that these recoveries and audits resulting from complaints are all the result of flagrant activity such as embezzling from a plan or a company executive using plan assets to pay for a trip around the world, but that is not the reality. An investigation or audit could be initiated because a participant files a complaint with the Department of Labor that benefits aren’t being paid when due or as a result of answers on Form 5500. Failure to file Forms 5500 is also a red flag. While the Department of Labor seeks voluntary compliance when it finds violations, failure to work out an agreement can lead to further enforcement action.
What are some of the issues that might be uncovered by the Department of Labor? Here is short list-
· Prohibited transactions and self-dealing. Many fiduciaries are not aware of the range of related party transactions that are prohibited unless exempted or that it doesn’t matter if the transaction is fair to the plan or even a favorable deal. Some of these can be corrected by using the Voluntary Fiduciary Correction Program, which will head off any further enforcement action.
· Failure to maintain an ERISA bond to protect the plan against fraud or dishonestly of the people who handle plan funds.
· Imprudent investments.
· ESOP startup transactions in which the plan overpays for employer stock.
· Paying fees that are too high or improperly paying employer expenses out of plan assets.
· Failure to keep track of missing participants
Of course, the IRS has its own enforcement activity, and the IRS and the DOL coordinate and refer matters to each other when they discover violations. This list is just the tip of the iceberg.
Since both the IRS and the DOL have voluntary compliance programs that permit violations you discover yourself to be corrected, it is puzzling why more fiduciaries aren’t insisting on having third parties assist them in doing regular self-audits. Forewarned is forearmed.