Funds Recovered: Enforcement!

The latest statistics about the Department of Labor’s investigatory and recovery efforts on behalf of retirement plan participants demonstrate that fiduciary failures come at a tremendous cost to plans, participants and beneficiaries. A major area of continuing concern and focus is on ensuring “missing participants” receive their distributions.

Civil and Criminal Investigation

The DOL’s Employee Benefits Security Administration (EBSA) has had another busy year enforcing compliance with ERISA law. As attorneys at Morgan Lewis report, EBSA “has continued to be active in civil and criminal enforcement investigations of ERISA’s fiduciary duties”:

Each year, EBSA announces statistics measuring its enforcement activities. These statistics can provide insight into EBSA’s enforcement priorities, as well as the pace of its enforcement program. In the DOL’s 2022 fiscal year (October 2021 to September 2022), EBSA recovered more than $1.4 billion for plans, participants, and beneficiaries, with $931 million being recovered through enforcement actions. To achieve these results, EBSA closed 907 civil investigations, 595 of which led to monetary results for plans or other corrective activities. EBSA also obtained 402 nonmonetary civil corrections in connection with its enforcement program, and it referred 55 cases for litigation. Of its criminal investigations, EBSA closed 164 criminal investigations, which led to the indictment of 103 individuals for plan-related offenses.

In particular, efforts to prevent missing participants and distribute benefits on schedule remain very high on the radar. Because neglected missing participants pose big challenges for retirement plans, sponsors have been advised to proactively aim at prevention, as detailed in EBSA’s 2021 guidance, which specifically instructs retirement plan fiduciaries to: “maintain complete and accurate census information; communicate with participants and beneficiaries about their benefit eligibility; and, implement effective policies and procedures to locate missing participants and beneficiaries.” Morgan Lewis points out that missing participants—and attention to the guidance— remains a hot issue—and high priority area for regulators:

A large portion of EBSA’s enforcement actions came from one investigatory initiative: the DOL’s investigations related to terminated vested participants (or missing participants). The DOL reported its investigations “helped 6,928 terminated vested participants in defined benefit plans collect benefits of $542 million owed to them.” These recoveries were over half of the DOL’s reported civil investigatory recovery amounts. This indicates that the DOL’s missing participant investigatory initiative remains active and that plans might still find themselves subject to a missing participant investigation.

Now’s a good time for plan sponsors to brush up on EBSA’s guidance in three parts related to missing participants, available here: Best Practices; Compliance Assistance; and, Field Assistance Bulletin. Additionally, experts share these tips for avoiding and reducing the challenges stemming from missing participants:

• Promote consolidation into and out of your plan. This reduces the problem of “small accounts” which inevitably spawn a higher percentage of missing participants. Look into the use of auto portabilityand facilitated roll-ins.

• Avoid the use of automatic cash-outs for plan balances below $1,000. This inevitably generates many uncashed checks, which drive more search activity. If you’re not already doing so, consider including sub-$1,000 balances in your plan’s automatic rollover program.

• Hire aprofessional search service. This will reduce your staffing commitment, provide higher-quality results, and produce better documentation of search activities.

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Important to Know

Locating retirement plan participants in order to properly distribute benefits includes staying abreast of their life status. Afterall, the assets left behind when a retirement plan participant dies must be properly administered to beneficiaries. Not knowing about a deceased participant can cause big problems for retirement plans. Beneficiaries do not always know about the benefits and as experts point out: “Plan balances could languish in perpetuity after being escheated to the state of residence on record. The stakes are higher for defined benefit (DB) plans, which often include lifetime income provisions for participants and their surviving spouses.” Of course incorrectly recording the death of a plan participant who remains alive is also a terrible mistake: “When living participants are falsely recorded as deceased, benefits may be prematurely discontinued, or worse, never paid….When deceased participants are falsely believed to be alive, benefit streams might not be discontinued or adjusted for survivors, which can adversely impact the plan’s funding status.”

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