For the last couple of years, the US Department of Labor (DOL) regional offices around the country have been investigating or auditing a number of large employer defined benefit pension plans (for background on the DOL’s activity, please see here and here). Ostensibly, the DOL investigations cover most aspects of plan documentation and administration. But ultimately, the investigations nearly always focus on deferred vested participants who are eligible to receive, but are not receiving, pension distributions. Typically, the DOL investigator will request lists of these participants from which s/he will develop random samples whom s/he will attempt to locate, contact, and steer into pay status. To a greater or lesser degree, and for various reasons, the investigator is often somewhat more successful than the plan administrator had been. These investigations have tended to be rather protracted, but it appears as if a handful may be nearing their conclusions.
We are aware that a few plan administrators have received “compliance” or “findings” letters from DOL regional directors. The letters outline the enforcement steps available to the DOL and participants, as well as the penalties, under ERISA. In accordance with its standard letter template, DOL offers to refrain from such actions only if the plan administrator takes necessary corrective action that will be set forth in a settlement agreement with the DOL. Unfortunately, nowhere do these letters articulate the specific standards or prudent processes to which the fiduciary is being held, nor do they correlate the required corrective actions with standards or processes that the DOL believes would satisfy ERISA’s fiduciary requirements. Instead, it appears that the DOL overlooks the longstanding and well-established hallmark of fiduciary compliance—a prudent process—by focusing instead on the outcomes of the plan’s administration, with the benefit of hindsight.
As plan fiduciaries may be aware, apart from a 2014 Field Assistance Bulletin addressing steps to locate missing participants under a terminated defined contribution plan, the DOL has never issued any generally applicable regulations or other guidance concerning fiduciary responsibilities to locate and pay lost or otherwise unresponsive participants. Similarly, other than regulations proposed in 1980 that generally would absolve current fiduciaries from liability for incomplete or inaccurate records for a predecessor plan, the DOL has provided no generally applicable guidance on the fiduciary responsibility to maintain pristine records or outline the scope of a fiduciary’s obligations to resolve discrepancies. Instead, the DOL now appears to be using the threat of enforcement action, based on ad hoc, unarticulated, and conclusory standards, to coerce individual plan administrators to adopt procedures—and most likely, achieve results—that are subjectively satisfactory to the DOL.
Accordingly, we are encouraging and working with affected plan administrators to promptly and proactively respond to the DOL investigations and the accompanying requests for documents and information. We continue to believe that early and clear communication with the DOL, including the clarification of any misperceptions that may occur from reviewing plan records without the benefit of dialog, can help direct the course of an investigation and even help close the investigation. We also think that it may be productive for plan administrators to propose settlement agreements that are reasonable and workable from the plan administrators’ perspective. We are also working with affected plan administrators who have received a compliance or finding letter to raise appropriate objections to the DOL’s conclusions, based on the lack of applicable formal guidance and the proper application of ERISA’s fiduciary standards. We view this as an opportunity for plan administrators to take the initiative to try to conclude these matters favorably and without any finding of fiduciary breach.
Some plan administrators may consider a DOL investigation to be a simple administrative matter that can be addressed as part of the plan’s standard operation. Such an approach underestimates both the level of attention being paid by the DOL to these investigations and the risks of an unfavorable outcome. If your plan is the subject of a DOL investigation, or if you would like assistance in evaluating your plan’s compliance with respect to the deferred vested and missing or recalcitrant population, please reach out to your Morgan Lewis contact for assistance.