The Federal Civil Penalties Inflation Adjustment Act of 2015 directs the US Department of Labor (DOL) to make annual inflation adjustments to specified Employee Retirement Income Security Act (ERISA) violations. The increased penalties generally apply to reporting and disclosure failures if the penalty is assessed after January 15, 2022, and if the violation occurred after November 2, 2015.
Even though it is the employer’s responsibility to track down former employees and let them know of leftover retirement benefits, it doesn’t always work out that way. In recent years, the US Department of Labor’s Employee Benefits Security Administration has demanded companies improve their methods for finding former workers.
In this article published by the Center for Retirement Research at Boston College, McDermott Partner Jeffrey M. Holdvogt said regulators “put a lot of pressure, in a good sense, on plan administrators to really up their games.” Holdvogt shared his comments in a May webinar hosted by the Pension Action Center at the University of Massachusetts, Boston.
The US Department of Labor’s decision last month to table Trump-era regulations limiting socially conscious investments by retirement plans signals that the Biden administration is considering an embrace of so-called ESG funds, which attempt to advance environmental, social and corporate governance goals.
Tabling these regulations brings “the Department of Labor into alignment with the desire of not just plan fiduciaries, but more notably, the actual plan participants to use their retirement assets in a socially conscious manner,” McDermott partner Erin Turley said in an article for Law360.
Two days before the one-year anniversary of the official start of the COVID-19 outbreak, the US Department of Labor (DOL) issued a last-minute notice clarifying its prior guidance that relaxed the deadlines for the Employee Retirement Income Security Act-governed group health and welfare plans (ERISA) related to the Consolidated Omnibus Budget Reconciliation Act (COBRA) and various special enrollment and claims procedures.
The most obvious potential conflict of interest for advisers setting up or serving pooled employer plans is if their practice is affiliated with the investments being selected—but there are other potential pitfalls to acknowledge.
In a recent article, Erin Turley, a partner with McDermott Will & Emery, said a potential conflict of interest for advisers to PEPs would be if they were acting as either a 3(21) or 3(38) fiduciary to help select investments and were paid from plan assets.
DOL Official Says Office Is Investigating Large Defined Benefit Plans Regarding Locating and Paying Terminated Vested Participants
Recent comments from an official with the Department of Labor (DOL) indicate that the DOL’s Employee Benefits Security Administration (EBSA) has begun investigating large defined benefit plans to review how plan administrators are keeping track of benefits owed to terminated vested participants and if they are really paying participants like they should be. According to the February 2, 2015 BNA Pension & Benefits Reporter, Elizabeth Hopkins, counsel for appellate and special litigation for the DOL’s Office of the Solicitor, Plan Benefits Security Division, stated at a pension conference that EBSA is interested in monitoring whether plan administrators are following their own procedures to locate and pay out terminated vested participants. In particular, EBSA is investigating how plan administrators locate and pay out terminated vested participants over the age of 70 ½ who are owed required minimum distributions.
Defined benefit pension plans must provide that they will distribute benefits beginning no later than the required beginning date, which for most plan participants means April 1 of the calendar year following the later of (i) the calendar year in which a participant turns 70 ½ or (2) the calendar year in which the participant retires. As we noted in our recent article on the “Top IRS and DOL Audit Issues for Retirement Plans,” plan sponsors have a fiduciary duty to try to locate missing participants, to contact terminated vested participants, and to begin distributing benefits within required timeframes. Failure to pay required minimum distributions after a participant turns 70 ½ is a plan qualification error, and participants who miss required distributions may be subject to a 50 percent excise tax. The DOL has also indicated that it may impose personal liability on plan fiduciaries for any tax consequences owed to their employees. For all of these reasons, it is crucial that plan sponsors ensure that proper procedures are in place, and that plan procedures are being followed, to locate and contact terminated vested participants.
DOL Report on Quality of Independent Plan Audits Shows that Plan Sponsors Must Continually Monitor Plan Compliance
The Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor (DOL) recently released “Assessing the Quality of Employee Benefit Plan Audits,” a comprehensive report reviewing the quality of audit work performed by independent qualified public accountants with respect to financial statement audits of employee benefit plans covered by the Employee Retirement Security Act of 1974 (ERISA). EBSA finds, among other things, that nearly four out of 10 (39 percent) employee benefit plan audits completed by independent qualified public accountants for the 2011 filing year contained “major deficiencies with respect to one or more relevant GAAS requirements” which “would lead to rejection of a Form 5500 filing.” Common audit deficiencies include insufficient review of plan documents and administration, failure to obtain evidence of required communications to participants, inadequate review of employee eligibility, participant accruals and non-discrimination testing, and failure to obtain evidence of adequate internal controls.
EBSA’s findings are significant for plan sponsors and fiduciaries, because they illustrate the importance of continually monitoring employee benefit plans for compliance with the requirements of ERISA and the Internal Revenue Code. It can be easy for plan sponsors and fiduciaries to assume that once the independent audit is complete they can rest assured that the plan complies with legal requirements. However, as EBSA shows, completion of an independent audit does not guarantee compliance. Moreover, an independent audit is not enough—plan sponsors have a fiduciary obligation to ensure their plans are properly maintained and administered beyond what is required to complete the annual audit.
We recently published an article on the “Top IRS and DOL Audit Issues for Retirement Plans.” As we discuss in the article, both the Internal Revenue Service (IRS) and DOL are increasingly focused on the internal controls that plan sponsors and fiduciaries maintain to show that their benefit plans are in compliance when they audit employee benefit plans. The article describes numerous steps plan sponsors should take to review their plans to avoid problems that come up on IRS and DOL audits, as well as to make sure they have proper internal controls. Regular review of these issues and proper focus on internal controls can help prevent costly fines and fees when the IRS or DOL does audit a plan.
On May 2, 2014, the U.S. Department of Labor (DOL) Employee Benefits Security Administration (EBSA) issued proposed regulations which seek to amend the notice requirements under the Consolidated Omnibus Budget Reconciliation Act (COBRA). The changes are intended “to better align the provision of guidance under the COBRA notice requirements with the Patient Protection and Affordable Care Act (ACA) provisions already in effect, as well as any provisions of federal law that will become applicable in the future.”
Under COBRA, a group health plan must provide participants with a general COBRA notice and COBRA qualified beneficiaries with an election notice. These notices describe a qualified beneficiary’s right to continue coverage under a group health plan. On May 8, 2013, DOL issued Technical Release 2013-02, which included a series of model COBRA notices (see “Notice of Coverage Options Available Through the Exchanges” for more information). These model notices include references to the ACA, noting that some qualified beneficiaries (1) may want to consider and compare health coverage alternatives to COBRA continuation coverage that are available through the ACA exchanges and (2) may also be eligible for a premium tax credit to help pay for the cost of coverage.
The proposed regulations eliminate the current versions of the model notices. However, until the regulations are finalized and effective, the DOL will consider appropriately completed use of the model notices that are currently available on its website to constitute good faith compliance with the notice content requirements of COBRA. Once the current notices are available, they will be posted at the following links:
Note: Use of the model notices is not required.