Past Assistant Secretary of the Department of Labor Lisa Gomez offered some good advice for retirement plan fiduciaries on how to stay off the DOL’s enforcement radar while speaking on a panel at the Qualified Plan Fiduciary Summit in Overland Park, Kan., on Tuesday.
“If there were smaller issues, I was thinking that where there’s smoke, there’s fire.”
Lisa Gomez
Don’t screw up the basics!
During a keynote session titled, “Legislation and Fiduciary Frontlines: What Plan Sponsors Need to Know Now,” moderator Scott Liggett, Director of ERISA Oversight for Prime Capital Financial, asked Gomez about fiduciary red flags that would get the DOL’s attention.
“Red flags that we saw as regulators were usually getting down to the basics. Just areas in which plan sponsors were missing kind of the basics when it comes to filing 5500s, doing other types of disclosures that were incomplete,” said Gomez, who served as EBSA Secretary under the Biden administration. “If there were smaller issues, I was thinking that where there’s smoke, there’s fire.”
While acknowledging that everyone makes mistakes from time to time, screwing up the basics is a definite red flag.
“There’s lots of times where if someone is doing certain things wrong, if a plan is doing certain things incorrectly as far as these basic filings that need to be done, or basic disclosures, then that is an indication that there could be a bigger problem—that there’s not a priority being put on compliance,” Gomez continued. “That there’s not really an understanding by the plan sponsor that they are wearing that hat of a fiduciary and that they do really need to be monitoring the service providers that are involved and making sure that all of the obligations of a plan are being taken care of.”
If there is a service provider that is not doing something correctly for one plan, it’s probably making the same mistake for lots of different plans, Gomez said. “The department would look at other clients of that service provider to see if they are having the same problems.”
Gomez added that because EBSA is a relatively small agency within the federal government, it utilizes a large-case approach in order to be effective and efficient.
“What that means is they are trying to get the biggest bang for their buck as far as enforcement is concerned,” she said.
While she said EBSA will address issues coming up with smaller plan sponsors that may come to their attention, they are more likely to investigate large service providers who serve large numbers of plan sponsors found to be charging excessive fees or not reporting correctly on behalf of plans. “If there’s a service provider that isn’t doing something correctly with one plan, it’s probably not doing that same thing correctly with lots of different plans. That is another red flag,” Gomez said.
“The department would then look at other clients who also have relationships with that same service provider to see if they could, a) find issues, and b) more importantly, make corrections across the board and with a wider scope.”
Gomez was joined on the panel by Will Hansen, Executive Director, Chief Government Affairs Officer, American Retirement Association, and noted ERISA attorney Fred Reish, Esq., Partner, Drinker Biddle & Reath LLP.
Reish addresses forfeiture lawsuits
In addition to addressing fiduciary hot buttons, three of the nation’s top voices in retirement policy and fiduciary governance also unpacked the latest legislative developments and regulatory shifts impacting plan sponsors today.
“Nobody saw this coming. I’m telling you these lawsuits have shocked everyone.”
Fred Reish
Reish noted that the most interesting ERISA litigation happening right now deals with forfeitures.
If a company with a retirement plan has a vesting schedule for that plan, somewhere buried deep in the plan document will be mention of how forfeitures will be used. Many have language saying forfeitures may be used this way OR that way. The issue becomes which “or” is used for forfeitures—and is that in the best interest of plan participants?
If the employer decides to use forfeitures to reduce its contributions to the plan, it may well be ripe for a lawsuit—of which there are now many.
“Nobody saw this coming. I’m telling you these lawsuits have shocked everyone,” Reish told the QPFS audience, adding that there are currently over 20 of these lawsuits with mixed decisions by the courts so far.
“We don’t know what the outcome is going to be. It could go either way at this point,” Reish said. “But there seems to be some general agreement among the courts that it is the fiduciary obligation to implement that provision—and the fiduciaries have to implement in the best interest of the plan participant.”
He recommended plan sponsors make a point of looking at this provision in their plan document—and now. “Make sure you’re doing something about it. What does it say that you all as fiduciaries are supposed to do?”
He added that litigation attorneys—plaintiffs and defense—feel like they are walking on thin ice because they don’t yet know how this issue is going to shake out.
“So take a look at it now. Try to make sure that with the help of your lawyer, with the help of your advisor, you are doing this in a way that at least from today forward will be compliant.”
SEE ALSO:
• 401(k) Forfeiture Lawsuits and SECURE 2.0 Compliance with Richard Clarke
• Current State of Retirement Plan Forfeiture Litigation Subject of Wagner Law Update
• Trump EBSA Nominee Aronowitz a Stern Critic of Frivolous ERISA Litigation
• Lisa Gomez, Jonathan Thomas Among Headliners at Next Week’s QPFS Event
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.