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The DOL and your 401(k) Plan

One of the proverbial retirement boogiemen that many employers are concerned about is the Department of Labor (DOL). For many employers, their fear is driven largely by the unknown or lack of familiarity with the DOL and their practices, motivations, etc. In my discussion with Sam Henson, an ERISA Attorney and prior DOL investigator and now VP of Regulatory and Legislative affairs with Lockton Retirement Services I picked up several interesting tidbits that could help employers:

  1. General advice to employers: Run your plan as if you are going to be subject to a DOL investigation tomorrow.

  2. Employers should not fear the DOL. While a DOL investigation can be unsettling, it should not keep you up at night.

  3. The DOL is primarily focused on enforcing the ERISA requirements around required reporting, participant disclosure and the fiduciary duties of running a 401(k) plan.

  4. The IRS focusses on the tax side of your plan which include items such as non-discrimination testing, coverage testing, definition of compensation and maintaining the qualified status of your 401(k) plan.

  5. It is rare for the DOL to investigate a 401(k) plan and make a referral to the IRS for an investigation.

  6. The DOL does not have an army of investigators waiting to swoop in and pounce on employers for the smallest of mistakes.

  7. The DOL does have specific targeting and other initiatives they use to select employers for investigation or audit

  8. Most common things that trigger a 401(k) investigation by the DOL is:

  • Answers provided on your Form 5500

  • Participant complaints

  • Targeting projects

  • Service provider referrals

  1. DOL typically receives over 250,000 participant complaints each year. The good news is that participant complaints are vetted by the DOL to determine if they are items that could truly indicate problems with a plan from a disgruntled employee looking to stir up trouble.

  2. The most common items on a Form 5500 that could trigger a DOL investigation are:

  • Late participant contributions

  • Non-traditional or hard to value investments

  • Leases or loans in default

  1. Current targeting initiatives to be aware of are:

  • Companies filing for bankruptcy will likely trigger a DOL investigation to ensure participant assets are being protected

  • 401(k) plans with an ESOP provision, plans are very technical and many opportunities for missteps

  • Compliance with fee disclosure and determination of fee reasonableness

  1. DOL is focusing more efforts and resources on large plans because they impact larger groups of participants

  2. If you receive a letter announcing a notice of investigation from the DOL you should:

  • Open it!

  • Ensure it is for the correct company and plan.

  • Alert outside ERISA counsel

  • Check your calendar for the date of the onsite visit, reschedule well in advance if needed.

  • Do you have an appropriate place to host the audit? If not, consider an off-site location.

  • Prepare list of requested documents, enlist help from your service providers.

  • All hands on deck! Ensure anyone with fiduciary status is available or present to meet with the investigator when they are onsite.

  • Take appropriate action based on closing letter from DOL.

  1. During a DOL interview, only answer questions you are confident in the answer to, do not guess. Consider having outside ERISA counsel present. Click here to request a list of sample interview questions.

  2. Focus on creating and running a strong and documented fiduciary governance process, this is your best protection during an investigation. Your defense or answers to questions should not only be supported by verbal assurances, have the documentation to support your process.

  3. Ensure your plan fiduciaries receive training.

  4. Future focus of the DOL:

  • Broaden reach and scope into other service providers

  • DOL takes cues from ERISA lawsuits

  • Proposed redefinition of ERISA fiduciary, expand how service providers can be classified as a fiduciary

  • Continue to refine fee disclosure requirements to help plan sponsors more easily determine fee reasonableness

  • Retirement income projections on participant statements

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