Retirement Plan Risk Oversight

“What’s the next big risk that I haven’t heard of yet?” is one of the best questions I get asked by corporate directors and officers.  I recently learned about a risk concerning retirement plans that’s both concerning and—happily—highly susceptible to mitigation. Keep reading for a briefing from Woodruff Sawyer’s own retirement and pension plan expert, Kristina Keck.

It turns out that fundraising entrepreneurship is alive and well in Washington, D.C., at least at the Federal Department of Labor. The DOL has the ability to investigate retirement plans. It can also impose fines and penalties for non-compliance. I had anecdotally noticed what felt like a spike in investigations starting a couple of years ago, and my research confirmed my suspicions: we now know that the DOL collected more than $1.2B in fines in 2012. If you think that you are not vulnerable to a DOL investigation resulting in a fine, think again. Approximately 72% of plans investigated in 2012 resulted in some sort of fine or correction. Expect that figure to go up in 2012.

What went so wrong with the plans that fines had to be imposed? According to the DOL, most of the findings were not heinous in nature. Rather, the DOL found simple errors made at the staff level or due to a lack of fiduciary responsibility education on the part of the plan sponsors. Examples of some of these errors include failure to follow the provisions of their plan document; failure to transmit deferrals in a timely manner; and failure to follow loan provisions. I note that most of the errors were made in the day-to-day operation of the plan, most of which happened far below the office of the plan fiduciary.

I expect that the heat is only going to get turned up in this area. In July 2012 the DOL instituted sweeping ERISA fee disclosure rules that, in some instances, are likely to prompt still more investigations. One of the new rules requires that any covered service providers (ex. record keepers, financial advisors, Third Party Administrators) disclose to the plan sponsor any fees they collected as a result of servicing the plan. Another new rule requires that the plan sponsor provide notice of all retirement plan fees to their employees. This new disclosure will have the positive impact of making sure that employees know the costs associated with their retirement accounts. To the extent that the costs seem too high, however, we can predict that employees may complain to the DOL, thus generating more investigations. And given the DOL’s hit rate on fines, it only makes sense for them to pursue these complaints aggressively.

What should you do to mitigate your risk?

In my experience, employers are trying to do the right thing vis a vis their employee retirement and pension plans. The new rules and the DOL’s heightened activity provide terrific incentives for employers to go through the steps of confirming that they are in fact complying with all relevant rules and regulations when it come to these plans.

As a plan sponsor, your potential DOL investigation will go much more smoothly if you’ve taken the following steps before the DOL ever knocks on your door:

  • Update and deploy the training you provide to relevant parties at your company concerning being a planned fiduciary, and of course document this effort;
  • Ask your service providers to confirm what their fiduciary responsibilities are to you and your plan. What you are looking for here is confirmation that they will place the interests of the plan sponsor, the plan and its participants before their own.  Working with your service providers, establish and implement a documented fiduciary process that is repeatable and most importantly, defendable.
  • Working with your service providers, review and update your retirement plan investment policy, and document this process.
  • Document your annual review of your retirement plans, including items such as plan fees, plan investments, expenses and revenue sharing arrangements, recordkeeping costs, advisor costs, as well as the various provisions of your plan document.

On this last item, the IRS has a basic 401(k) checklist that is a good place to start.

Whether you turn to someone like me at Woodruff Sawyer or another trusted advisor to help you, my message is one of urgency when it comes to taking the steps I’m advising above. The days where the DOL would allow an employer to beg forgiveness for lack of knowledge are long passed. The good news is that your efforts will result not only in ensuring that you are in fact doing a great job with your retirement and pension plans; you might also avoid landing on the list of folks that had to pay a fine to the DOL for non-compliance.

The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email:



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