The US Department of Labor (DOL) maintains a robust investigatory program for auditing employee benefit plans for potential ERISA violations. Under the Biden administration, the DOL’s ERISA enforcement activities and investigations have remained a high priority. As such, ERISA plan fiduciaries and service providers can expect the DOL to continue its ever-evolving enforcement program targeting both fiduciaries and nonfiduciary service providers.
Recent reporting by the DOL provides insight into its current official and unofficial enforcement priorities and may help plan fiduciaries and in-house counsel seeking to track the DOL’s enforcement activities.
In February 2024, the DOL published a fact sheet summarizing its enforcement activities and highlighting $1.4 billion in recoveries during FY 2023. In late March, President Biden signed into law a $1.2 trillion spending package that included a $191.1 million appropriation to the DOL, which will be used to fund its FY 2024 budget. Both the fact sheet and DOL statements to support their budget requests provide valuable insights into what the DOL will be focusing on in future investigations.
The DOL also reports its National Enforcement Projects on its website. Those official priorities include the following:
- Protecting Benefits Distribution (focusing on distressed plan sponsors, abandoned plans, and housing the DOL’s Terminated Vested Participant Project, which focuses on missing participants)
- Plan Investment Conflicts (focusing on issues related to compensation received by fiduciary service providers and on conflicts of interest)
- Health Enforcement (focusing on mental health parity and compliance with the Mental Health Parity and Addiction Equity Act (MHPAEA), coverage of emergency services in compliance with the Affordable Care Act, fees charged by service providers, and fraudulent multiple employer welfare arrangement operators)
- Employee Stock Ownership Plans
Our Thoughts
Our main takeaway from the fact sheet, budget, and the stated Enforcement Projects, as well as recent experience with DOL investigations, is that the following areas may be of particular focus during future DOL investigations:
- Cybersecurity and participant data issues. After issuing guidance setting forth its views that ERISA plan fiduciaries have a responsibility to seek to protect plan assets and information from cybersecurity risks, the DOL has prioritized conducting investigations into these issues. We have advised, and are advising, on many DOL inquiries on these issues. The DOL has publicly affirmed its focus on these investigations. For example, in prior budget requests, such as that for FY 2024, the DOL identified its desire “to dedicate sufficient investigative resources to . . . cybersecurity.”
- Missing participants, which has been an area of focus for years (on which we have previously written). This a longstanding DOL focus that we expect to continue because (1) the DOL lists it as an official DOL Enforcement Project and (2) the DOL fact sheet identified that its missing participant investigations represented a significant portion of its enforcement recoveries. (“Recoveries for terminated vested participants (e.g., individuals no longer working for an employer but entitled to benefits from an employer sponsored other job-based retirement plan) played a large role in these results.”) We have seen the DOL extending these missing participant reviews to defined contribution plans and uncashed checks.
- Illiquid and hard-to-value assets, including private equity and alternative investment classes (such as cryptocurrency) in both defined benefit and defined contribution plans. We have seen an increased focus on DOL questions regarding these asset classes, particularly within defined benefit plans. The DOL has also signaled an interest in issues around these types of investments. For example, in prior budget requests, the DOL stated a desire to “dedicate sufficient investigative resources to risky investment practices involving illiquid and hard-to-value assets.” Similarly, in 2022, the DOL publicly expressed disfavor of cryptocurrency in ERISA plans and threatened investigations of plans invested in that asset class.
- Mental health parity and MHPAEA enforcement, including enforcement relating to nonquantitative treatment limitations.
- Proper use of plan forfeitures. This has been an area of increased civil litigation, but the DOL has also investigated and made adverse findings on the issue of the proper use of plan forfeitures.
- Evidence of insurability issues, meaning situations in which insurance premiums are collected to provide ERISA insurance benefits but coverage is ultimately unavailable to the participant because evidence of insurability was never collected.
While this list is not exhaustive, it highlights areas of likely focus. Compliance and benefits teams may wish to focus on these areas because noncompliance in these areas may draw significant scrutiny in the event of a DOL investigation.
How We Can Help
We stand ready to assist organizations and plans that are currently under investigation by the DOL or that have questions about the DOL’s enforcement activities. Our offerings include a DOL Investigation Internal Audit Risk Assessment to help anticipate and avoid potential disruption and/or liability from these DOL investigations. Through this internal audit service, we conduct a review to identify legal compliance issues and gaps before a DOL investigation. Following the internal audit, we can help fix identified compliance gaps.
If you require assistance, please reach out to the authors of this post or your primary Morgan Lewis contact.