SETTING PRIORITIES: PWBA program targets payments to service providers
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Comvest closes credit fund at $1.3 billion
      Wall Street signage in the Financial District of New York
      Assets in alternative investments set record in 2020
      Non-profit questions dividend recapitalization play at Ares portfolio company
      Walker & Dunlop appoints managing director
    • Philip Pearson
      Hymans Robertson chooses head of LGPS investment
      Daniel Celeghin
      Indefi hires New York-based managing partner
      Hub International continues buying spree with IBG acquisition
      Callan brings on 2 executives
    • Pandemic takes toll on real estate fundraising in 2020
      Swedish flags fly from a tourist souvenir shop in Gamla Stan in Stockholm on March 26, 2020
      Systematic hedge fund IPM to shutter after ‘lackluster’ performance, outflows
      Insurers taking on more portfolio risk as pandemic ebbs – survey
      American flags outside the New York Stock Exchange
      Stock shorts collapse as no hedge fund wants ‘head ripped off’
    • Comfy retirement still on track for most Americans despite pandemic – survey
      Pentegra joins with EPIC to offer 3(16) fiduciary services
      Joseph Healy
      Smaller DC plans place greater focus on improving financial wellness efforts
      Interest rises in keeping retiree assets in-plan
    • CDPQ boosts low-carbon assets to 10% of portfolio
      White House sets ambitious goal for greenhouse gas emissions by 2030
      Yale rolls out 5 principles for endowment on fossil-fuel investing
      Pension funds hear from beneficiaries on ESG – report
    • Riscura stories
      Dystopian tales explore altered retirement reality
      Joel Holsinger
      Ares wants to do good – and profit – with fund
      Girls Who Invest
      MetLife plans 3 internships for Girls Who Invest scholars
      Model home
      Resmark sees niche in buying, leasing model homes
    • Swedish flags fly from a tourist souvenir shop in Gamla Stan in Stockholm on March 26, 2020
      Systematic hedge fund IPM to shutter after ‘lackluster’ performance, outflows
      Credit Suisse logo
      Credit Suisse expects further hit from Archegos scandal
      Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      Hedge funds post best first-quarter return since 2000
    • Trillium hires 2 to lead expansion into U.K.
      CDPQ boosts low-carbon assets to 10% of portfolio
      White House sets ambitious goal for greenhouse gas emissions by 2030
      San Joaquin County casts net for core bond managers
    • Trillium hires 2 to lead expansion into U.K.
      Bill Hench
      First Eagle gives wing to small-cap equity team with liftout from Royce
       Kaitlin M. May
      Putnam Investments names head of global institutional management
      Paul Griffiths
      HSBC Asset Management selects next global head of institutional business
    • Denmark’s ATP plans bid to build North Sea energy island
      PennPSERS taps Verus for oversight consulting services amid probe
      State pension plan funding advances in first quarter – Wilshire
      Sacramento County Employees rebalances equity, fixed-income portfolios
    • SEC names new enforcement chief
      Trillium hires 2 to lead expansion into U.K.
      Walker & Dunlop appoints managing director
      Bill Hench
      First Eagle gives wing to small-cap equity team with liftout from Royce
    • EQT closes latest private equity fund at $18.7 billion
      U.S. $100 bills
      AlpInvest raises $3.5 billion for latest co-investment fund
      ILPA members making diversity a bigger priority in private equity
      European private equity deal value, volume hit records for first quarter
    • Pandemic takes toll on real estate fundraising in 2020
      J. Tomlinson Hill
      Two Sigma takes quant expertise into real estate investing
      BentallGreenOak closes latest European fund at $2.3 billion
      Cohen & Steers adds team for new private real estate business
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
    • A coin representing Bitcoin cryptocurrency in the U.K.
      Cryptocurrency and digital assets
      Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Alexandria, Va., scouting for DB and DC plan consultants
      Gresham, Ore., hunting for 457 plan consultant
      San Joaquin County casts net for core bond managers
      Rhode Island commits $25 million to buyout fund
    • Alexandria, Va., scouting for DB and DC plan consultants
      Gresham, Ore., hunting for 457 plan consultant
      San Joaquin County casts net for core bond managers
      Rhode Island commits $25 million to buyout fund
    • Emerging Market Debt Manager Services
      Real Assets Consultant
      Passive Investment Management Services
      Active Extended Global Credit Manager Search
    • High-yield spreads narrow, default rates drop
      Private real estate funds continue rebound
      Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • BPTW cartoon
      P&I’s Best Places to Work marking a milestone
      Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
      Jake Remley
      Commentary: Inflation expectations vs. reality in the bond market
      Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      Fixed income 2021
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • Invesco logo shown on the floor of the New York Stock Exchange
      watch video
      1:28
      Invesco’s bid for performance gains
      watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
    • POLL: Cryptocurrency investing
      POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • High-yield spreads narrow, default rates drop
      By the Numbers for April 2021
      Graphic: The state of DC plans
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
      Retirement Income Conference
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Print
June 12, 2000 01:00 AM

SETTING PRIORITIES: PWBA program targets payments to service providers

DC plans high in new enforcement effort

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    WASHINGTON -- The Labor Department for the first time has mentioned compensation received by defined contribution service providers in discussing its national enforcement policies.

    "Wouldn't it make more sense to investigate an administrator who may be doing the same thing with a number of plan sponsors, thereby revealing multiple violations, rather than one violation of a plan sponsor?" asked Virginia C. Smith, director of enforcement for the Pension and Welfare Benefits Administration.

    In an attempt to make the most of increasingly stretched resources, the PWBA has released two programs -- one a voluntary fix-it program and, the most recent, its "strategic enforcement plan."

    PWBA's new voluntary fiduciary correction program, unveiled in March, encourages plan sponsors to voluntarily identify, and fix, violations of the Employee Retirement Income Security Act. Meanwhile, the strategic enforcement plan, released last month, outlines PWBA's national enforcement priorities, Ms. Smith said.

    Needing attention

    The PWBA says service providers and defined contribution plans are two of its "national investigative priorities" for 2000. (The other is health-care plans.)

    "Those are things we have identified over the years that need our attention," Ms. Smith said.

    According to the PWBA's plan, called StEP, the term "plan service providers" includes any person or company that gets paid for providing direct or indirect service to a plan. This can include third-party administrators, accountants, investment management companies and insurance companies.

    One example from the PWBA: A third-party administrator systematically retains an undisclosed fee. While Ms. Smith said it was only an example, ERISA attorneys say the mention is significant.

    "The reason this is significant is that a greater number of service providers . . . are receiving payments from mutual fund companies, insurance companies and others who provide investment products for 401(k) plans," said C. Frederick Reish, an ERISA attorney in the Los Angeles-based firm of Reish & Luftman.

    But many service providers do not believe the attention from the PWBA is warranted, Mr. Reish said.

    "The PWBA is wasting its time investigating third-party administrators charging fees for services but not managing investment products," he said.

    One of the keys the PWBA looks at is whether the service provider is being paid appropriately and, if the service provider is a fiduciary, whether it is using plan assets for its own benefit, PWBA's Ms. Smith said.

    It is unclear how many third-party administrators and others who receive these payments from money managers disclose them to plan sponsors, he said.

    "If the service provider is inappropriately using plan money to increase its compensation, we will investigate that," noted the PWBA's Ms. Smith.

    Enforcement of undisclosed fees could have the most effect on record keepers when the market experiences a sustained downturn, consultants say.

    "When the market goes sideways and everyone is flat, this is the one thing you can measure. How much did the plan pay in direct and indirect costs?" said Ward Harris, of McHenry Consulting Group, Berkeley, Calif.

    Adding up

    And these fees to record keepers can amount to a lot of money, Mr. Harris said. For example, a record keeper of a $10 million plan could be receiving up to $50,000 per year in rebates from money managers in exchange for being included in the record keeper's array of funds offered to plan sponsors, he said.

    "There is no way for the plan sponsor to tie hard or soft costs to any measure of reasonableness," Mr. Harris said. "If the plan sponsor is not aware and accountable for what it is spending for participants, then it's not a good fiduciary."

    What's missing from the StEP, however, is what type of cases the PWBA will be taking on, said Andree St. Martin, partner with the Washington-based law firm The Groom Law Group.

    "It's hard to know what the department will be going after," she said. The best information is from clients and what issues are coming up in actual cases, she added.

    Ms. Smith acknowledged the 10 regional offices are given free rein to develop their own enforcement projects, which are not publicized. However, of the six national enforcement projects, three involve pension plans. They are: the employee contribution project that monitors plan sponsor delinquencies in transferring employee contributions into their defined contribution plan; 401(k) fees; and, a new project, orphan plans where the fiduciary has deserted the plan because of death, incarceration or the company is bankrupt, Ms. Smith said.

    As for rebates paid by money managers to record keepers and bundled service providers, the Department of Labor has mentioned them in its advisory opinions and in responses to applications for prohibited transaction exemptions mainly concerning participant investment advice, Ms. St. Martin said. "There is some guidance, but it is not in one place," she said.

    "The DOL is brilliant that in highlighting their enforcement efforts, they have said close to nothing," about what they will be investigating, said Kyle Brown, retirement counsel for Watson Wyatt Worldwide's research and information center, Bethesda, Md. "They are reminding people that there is a cop on the beat. They are publicizing their enforcement activities to encourage voluntary compliance by others."

    The PWBA has been "sensitive" about fee arrangements between record keepers and bundled providers that have not been disclosed to plan sponsors, but, overall, the StEP is not specific enough, Mr. Brown said.

    Watson Wyatt has had offices audited by the Department of Labor in the past, he said. "They focus on following the money, but we do not do that because we do not handle the money except for our fees, and our fees are not abusive," he said.

    Consulting fees

    One issue that the Department of Labor has examined at Watson Wyatt is the payment of consulting fees from plan assets, Mr. Brown said. One client whose case was settled last month was audited on the consulting fee issue.

    "The auditor took a more conservative viewpoint than the DOL guidance on the issue," he said.

    Meanwhile, targeting specific individuals or companies are identified for investigation is a way of rationing stretched resources.

    Another way is the new voluntary fiduciary correction program, which encourages plan sponsors to voluntarily identify, and fix, violations of the Employee Retirement Income Security Act, , Ms. Smith said.

    "We hope if the VFC is a success it will free up our enforcement resources to correct the more egregious problems," Ms. Smith said. "We're trying to give the carrot and the stick."

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Gender diversity is improving on FTSE 350 boards
    Gender diversity is improving on FTSE 350 boards
    Innovations in DC: Helping Supercharge Retirement Outcomes
    Sponsored Content: Innovations in DC: Helping Supercharge Retirement Outcomes
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center