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Regulation

DOL guidance down to trickle; enforcement up

Few advisory opinions issued while agency makes missing participants major priority

Thomas E. Clark Jr. said the DOL is continuing to take an ‘aggressive stance’ on enforcement issues.

Enforcement actions were up significantly at the Department of Labor last fiscal year, especially with respect to missing participants, but the lack of additional guidance remains a pain point for the retirement industry, according to attorneys who specialize in ERISA-related matters.

"Broadly speaking, I have been very disappointed that the Trump administration has not provided a lot of the necessary workaday guidance from the agency," said Bradford Campbell, a Washington-based partner for Drinker Biddle & Reath LLP and former assistant secretary of labor for the Employee Benefits Security Administration during President George W. Bush's administration.

The EBSA recovered more than $1.6 billion for direct payments to plans, participants and beneficiaries last fiscal year, including $1.1 billion in enforcement actions, according to statistics on the DOL website earlier this year. The previous year, it recovered $1.1 billion, including $682 million from enforcement actions. Of note, its Terminated Vested Participant Project, which encompasses missing participants, recovered $807.7 million for participants in defined benefit plans in fiscal year 2018, up from $326.7 million the year prior, a 147% increase.

The DOL did not respond to questions as to whether it changed the way it calculates its enforcement numbers.

"It is clear that (Secretary) Alexander Acosta's DOL is continuing the enforcement priorities and overall aggressive stance that was started under the Obama administration," said Thomas E. Clark Jr., a St. Louis-based partner with The Wagner Law Group. "We're seeing that demonstrated at a macro level with these numbers and in our practice we're also seeing that at a micro level in defending plan sponsors and service providers in DOL investigations."

For plan sponsors who are not actively focusing on their fiduciary responsibilities and how best to fulfill them, the enforcement statistics should get their attention, said Carol I. Buckmann, partner at law firm Cohen & Buckmann PC in New York. "They are at risk," she added.

Attorneys said their clients are looking for guidance on issues like missing participants and employee stock ownership plans, which has been the case for several years.

Under the current administration, the DOL has filed two advisory opinions in 27 months. In the proceeding eight years under President Barack Obama, 28 advisory opinions were issued — but just four in the first two years. Under President George W. Bush, the DOL filed 102 advisory opinions in eight years, including 23 in the first two years.

Advisory opinions

The two advisory opinions issued by the Trump administration are one in 2017 on what constitutes an "employee welfare benefit plan" under Section 3(1) of ERISA and the other in 2018 issued for Retirement Clearinghouse LLC over expansion of its auto portability program to reduce plan leakage.

Mr. Campbell stressed that he has no issue with the current EBSA direction, but "the absence of policy decisions across a whole front of routine issues has been very frustrating. There are almost no advisory opinions coming out, and that has traditionally been one of the ways the agency has answered a lot of basic questions."

There are many questions plans sponsors and service providers want answered, the most pressing of which deal with missing participants, Mr. Campbell added. "It's not that we're asking the Trump administration to overturn decades of precedent, it's more saying that as practitioners go through in the real world to run plans, new problems emerge with old rules, so it's common, as has been the practice for decades, to go to the agencies, whether it's the IRS or DOL, and ask questions," he said.

While the DOL enforcement statistics aren't broken out on an issue-by-issue basis, attorneys said the agency has continued its efforts in going after sponsors delinquent in making plan contributions and sponsors that do not provide sufficient fee disclosures to participants and service providers. It has also pursued companies with ESOPs that it believes have not used a fair market valuation when purchasing stock on behalf of their employees.

And while the DOL hasn't issued any amicus briefs in court contests over broad plan management, product choices, fees and other defined contribution plan practices, according to the DOL's website, it has done so with respect to ESOPs. Of note, in July, the DOL filed a brief that called on a federal appeals court to uphold a nearly $30 million judgment issued against Wilmington Trust NA for purchasing company stock for the company retirement plan at a price above fair market value.

Aliya Robinson, senior vice president of retirement and compensation policy at the ERISA Industry Committee in Washington, said when the current administration took office she was "hopeful that there would be more attention paid to providing guidelines" with respect to ESOPs and missing participants.

Gone missing

EBSA's missing participant initiative started as a pilot program in its Philadelphia office in 2016 and was expanded nationally last year. Ms. Robinson said plan sponsors and the DOL each have the same goal on this front: making sure participants get the benefits they were promised. But sponsors have difficulty knowing how best to search for those missing participants and knowing when they can prudently stop looking, she added.

The large uptick in missing participant recoveries in 2018 indicates the issue is "a real push for the department and it's something that plan sponsors need to pay attention to," Mr. Campbell said.

The lack of guidance on this issue has led to frustration, he added. "The DOL enforcement effort isn't consistent. What one investigator thinks is perfectly appropriate conduct, another investigator will feel is inadequate."

Messrs. Campbell and Clark both said the DOL has been fair overall on enforcement issues, but Mr. Clark added that DOL investigators, with respect to missing participant investigations, have been "accepting of common sense limits to finding people that are unfindable. They're asking (plans) to have procedures but even when those procedures don't result in finding people, they're reasonable in understanding that."

A continuing trend

Elizabeth S. Goldberg, a Pittsburgh-based associate with law firm Morgan, Lewis & Bockius LLP, said the missing participant initiative has caught some plan sponsors off guard, especially with how active it has been and the scale at which it's grown. "We think it's advisable for clients to conduct a fulsome review and really take a look at their compliance in this area," she said.

Ms. Buckmann said every plan should do self-audits to catch any issues before the DOL comes knocking.

EBSA's Voluntary Fiduciary Correction Program — which allows plan officials who have identified specified ERISA violations to remedy the breaches and voluntarily report the violations to EBSA without becoming the subject of an enforcement action — received 1,414 applications in fiscal year 2018, up from 1,303 the year prior.

The overall uptick in enforcement is a trend Ms. Buckmann expects to continue. "I think that's surprised some people because on the regulatory side under the Trump administration we've had proposals that have maybe loosened some of the rules … but on the enforcement side we have a different picture," she said. "That robust enforcement is going to continue in 2019 and people need to be aware of that."