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DOL’s heightened focus on plan fiduciaries

fiducblogWith an increase in the number of defined benefit plans and the use of alternative investments, the Department of Labor (DOL) is spending more time and manpower in scrutinizing these plans and the parties that are entrusted to oversee and administer them.

The various officers of an organization, as well other persons acting in various capacities, have always been exposed to liability imposed under ERISA (Employee Retirement Income Security Act of 1974) when they are performing services for a qualified plan. But recent developments and market conditions have increased the focus on the fiduciary responsibility of these trustees, administrators and vendors.

The three biggest areas of concern for the DOL are Limited Scope Audits, Audit Quality and Fee Disclosures. ERISA allows for limited scope audits in situations where investment information is prepared and certified for a plan by a bank or by a regulated insurance carrier acting as a trustee or custodian. The DOL, however, is not particularly fond of this practice, and the quality of these audits has become a major point of concern. The DOL has been pushing for changes, and while it does not appear that Congress will provide a major overhaul to this exemption, the DOL will likely be watching very closely.

The focus on plan audit quality is not a new concern, but is one that is certainly gaining increased attention. While the DOL used to focus on plan expenses, the organization has more recently focused on firms’ expertise in performing audits on Employee Benefit Plans (EBP.) The DOL is seeking legislative change that would allow it to set its own audit quality standards and is advising plan administrators to take notice of audit quality. Administrators should insist that the audit firm have extensive EBP experience and that the audit is comprehensive in scope. It is the responsibility of the administrators to insure that the audit complies with DOL standards.

The new fee disclosure requirements from 2012 have proven to be cumbersome for many EBP plan administrators and vendors. While the DOL has taken a more consultative approach to dealing with the compliance of this requirement, it’s safe to say that such an attitude will not last forever. A more aggressive response to fee disclosure issues is certainly on the horizon, and plan administrators need to be prepared for a less congenial response from the DOL.

The issues listed above are only a few of the challenges that plan administrators face in this highly regulated space. As they work through these issues, it critical to note that a Fiduciary Liability policy can play a critical role in the risk mitigation program for all employee benefit plans.


About the Author

Myles Reagan is Vice President at William Gallagher Associates and a member of the WGA ExecutiveRisk team. He specializes in managing Financial Risks – mainly hedge funds , PE/VC funds, mutual funds , community banks, and asset managers.

617.646.0329 | MReagan@wgains.com | Connect with Myles on LinkedIn
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