Responsibly Handling a DOL Investigation – A Primer for CIOs

If you are a CIO for long enough, it’s inevitable that one of the retirement plans you work with will be the subject of a Department of Labor (DOL) investigation.  Unfortunately, investigations can be a long, stressful, resource-intensive process, but it helps to have a familiarity with the process and potential risks. 

DOL’s Investigatory Authority

DOL has broad authority under the reporting and disclosure requirements, fiduciary responsibility provisions, and prohibited transaction rules under the Employee Retirement Income Security Act of 1974 (ERISA). In enforcing those rules, DOL has the authority to investigate such matters as DOL “may deem necessary to enable [it] to determine the facts relative to” determining whether any person has violated any provision in Title I of ERISA. That allows it to perform on-site reviews/audits, subpoena documents and testimony, seek court enforcement, and even, in some circumstances, remove fiduciaries. 

DOL has a wide variety of possible tools for addressing violations. For example, the agency can recover plan losses, compel the disgorgement of profits from fiduciaries, compel the “undoing” or correction of non-exempt prohibited transactions, assess and collect civil penalties, and enjoin certain practices, or obtain other “appropriate equitable relief.” 

Focus of Investigations

DOL sometimes initiates investigations based on a process of random selection. However, it is common for DOL to investigate plans based on reporting in Form 5500s, participant complaint, lawsuits, negative media coverage, or referrals from other agencies (e.g., the Internal Revenue Service). Additionally, DOL has adopted a policy of “strategically focusing more investigative resources on [parties] with responsibility for large amounts of plan assets and the administration of large amounts of plan benefits.” In other words, DOL focuses more of its time and energy on large plans. 

During an investigation, DOL typically focuses on a core set of issues. For example, investigators generally review the adequacy of fidelity bond, compliance with reporting and disclosure rules (e.g., summary plan descriptions and participant statements), compliance with plan documents, compliance with the distribution rules, and the indemnification of fiduciaries. 

Over the past few years, we have seen investigators focus more intently on reviewing plans processes and procedures for locating missing participants and handling uncashed checks. That is particularly true with respect to defined benefit plans. 

Similarly, investigators are now conducting thorough reviews of fee disclosures to determine whether fees described in disclosures and contracts match fees received by service providers. Investigators are often particularly interested in float, trade errors, the calculation of and timing associated with fee credits, and the receipt of undisclosed indirect compensation. 

Investigatory Process & Timing

The first step to any investigation is typically a document request or phone call requesting a site visit followed by a request for interviews and depositions of key plan officials. Once the investigator has received the necessary information, he or she will then generally write an internal “Report of Investigation” for his or her supervisors discussing possible violations, if any. If there is a potential violation, the regional director typically sends a “10-day Letter” to the plan sponsors identifying violations.

DOL does not have a definitive deadline for completing investigations, and it is not uncommon for it to stretch on for years with long periods of inactivity.  However, the statute of limitations does put a limit on how far back the agency can enforce violations. Specifically, ERISA provides that any civil action must be filed no later than six years after a violation occurred or, if earlier, three years after DOL has actual knowledge of the violation. 

Responding to an Investigation

In our experience, it pays to take a DOL investigation seriously. Plan sponsors should be cooperative but firm in protecting their rights. It is typically advisable to retain outside counsel to help manage or, at the very least, provide advice with respect to the investigation. It is also important for plan sponsors to protect their rights under any fiduciary liability insurance policy. That may require notifying the relevant insurance broker or company. 

And, as is always the case with ERISA-related inquiries, an ounce of prevention is indeed worth a pound of cure. Regularly reviewing fees, fee disclosures, and other processes at committee meetings is critical. Also, just as importantly, carefully documenting such reviews goes a long way in preparing firms for what should be approached as the inevitable DOL review.

Dennis Simmons is the Executive Director of the Committee on Investment of Employee Benefit Assets (CIEBA), a trade group comprised of more than 100 of the country’s most experienced ERISA CIOs and fiduciaries. Michael Kreps is a Principal at the Groom Law Group where he advises retirement plan fiduciaries and service providers.