In 2012, we saw the Department of Labor (“DOL”) increase the number of investigations relative to previous years, a trend we expect to continue in 2013. Although most DOL investigations are “limited scope reviews,” such characterization is a misnomer. As some of our clients have experienced, these reviews are anything but limited in scope. Based on our experience in working with clients on these “reviews,” here are some tips for how to handle them.
First, review any documents and/or information before providing it to the DOL. Despite the “limited scope” characterizations, the DOL will request voluminous materials. Plan sponsors should review the request carefully and provide the information that has been requested, but only after it has been reviewed to see if it reflects potential errors. If there have been errors, the information cannot be withheld…it must still be provided, but we have found that it is good practice to bring the error to the attention of the reviewing agent along with an explanation about what the plan is doing to correct it. For example, during one investigation, a client, noticed that certain transactions were coded in the record keeper’s records as “mistakes of fact.” It became concerned and asked us for our advice. After researching these entries, it appeared that salary deferrals for terminated employees were being sent to the custodian. Ultimately, we assisted the plan sponsor not only with the DOL investigation, but also with its internal procedures to avoid a repetition of this problem.
Second, plan sponsors need to be prepared for onsite visits and interviews with the plan fiduciaries. During the interview process, many plan fiduciaries may be surprised by the number of detailed questions that the investigator will ask with respect to plan fees. For example, during another investigation, the DOL investigator asked in-depth questions about the plan’s ERISA expense account and evidence as to how the account was being handled. After reviewing the allocation report from the recordkeeper, an issue arose with respect to how the ERISA expense account had been allocated. We worked with the DOL investigator to resolve the issue, and the DOL issued a letter closing the investigation without further action.
Third, in light of the DOL regulations regarding fee disclosures that were issued during 2012, plan fiduciaries should be ready to discuss, in detail, the amount of compensation the various service providers are being paid from the plan and how the fiduciaries have determined that such compensation is reasonable. For example, we have assisted with investigations during which the DOL investigator requested evidence regarding the determination of reasonableness of fees by the plan fiduciaries. In one investigation, our client had obtained a benchmark report and documented the process which led to the determination that the fees were reasonable. This resolved any issues that the DOL investigator had regarding this issue, and the investigation was closed with no further action.
Lastly, we recommend that plan sponsors consider conducting voluntary internal compliance audits. This can include gathering a sampling of information that would normally be requested during an investigation as well as making sure policies and procedures for plan administration are documented and followed. By following these four steps, plan sponsors will help insure that the plan is being operated properly and they are fulfilling their fiduciary responsibilities…and that they will be more equipped to handle a “limited scope review” or a full investigation if one should arise.