EBSA will continue to prioritize finding missing participants

Missing participant enforcement actions remain a top priority for the Department of Labor's Employee Benefits Security Administration.

Roughly 80% of the money EBSA recovered from enforcement actions in fiscal year 2021 was connected to missing participants. EBSA recovered $1.9 billion from its investigations during the fiscal year ended Sept. 30, according to a fact sheet published on the Labor Department website last month, which is down from $2.6 billion in fiscal 2020 and $2 billion in fiscal 2019. In total, EBSA recovered more than $2.4 billion for direct payments to plans, participants and beneficiaries in 2021, down from $3.1 billion last year and $2.6 billion in 2019.

"Even though the overall number is down from last year, it still shows a trend over the past few years of very high numbers of reported enforcement recoveries relative to what we saw in the past," said Elizabeth S. Goldberg, a Pittsburgh-based partner with law firm Morgan, Lewis & Bockius LLP. "I think it continues to reflect a very robust enforcement program."

In fiscal 2016, EBSA recovered $352 million from its investigations.

Over the past five years, EBSA's Terminated Vested Participant Project, which encompasses missing participants, continued to produce results. Of the $1.9 billion recovered in enforcement actions in fiscal 2021, roughly $1.5 billion was from its TVPP, in line with the $1.5 billion the project recovered in 2020 and 2019, respectively.

TVPP recoveries represent a combination of the present values of lifetime annuity payments made to participants and beneficiaries, or lump-sum balance payments, plus interest distributions paid as either retroactive lump sums or included in actuarially adjusted future annuity amounts, the Labor Department noted in the fact sheet.

EBSA also obtained 449 non-monetary corrections during the fiscal year, 124 of which involved reforms of plan procedures, such as improved search procedures for missing participants, it noted in the fact sheet.

Will Hansen, Arlington, Va.-based executive director of the Plan Sponsor Council of America and chief government affairs officer at the American Retirement Association, took note of that point. "I found it interesting that the Department of Labor has required plan sponsors to make changes to their missing participant processes when the Department of Labor doesn't even have a regulation in that area," he said. "Right now, we're just relying on best practices from the Department of Labor."

After years of clamoring from the plan sponsor community, the Labor Department in January issued guidance in the form of a best practice list for locating missing participants and insight into how it approaches investigations on the matter.

The list of 27 best practices the Labor Department said retirement plan fiduciaries should consider in helping reduce missing participant issues include maintaining accurate census information for the plan's participant population, implementing effective communication strategies, conducting missing participant searches and documenting those procedures and actions. Before the new guidance, the Labor Department had no outlined process for plan sponsors to follow.

Moreover, the Labor Department outlined 10 ways plans should search for missing participants, including checking related plan and employer records for participant, beneficiary and next of kin/emergency contact information; attempting contact via other available means such as email addresses, telephone, text and social media; and reaching out to the workforce by publishing a list of missing participants on the company's intranet, in email notices to existing employees, or in communications with other retirees who are already receiving benefits.

With respect to TVPP investigations, the Labor Department said it focuses on plans that appear to have systemic issues with plan administration, particularly issues related to keeping track of terminated vested participants and beneficiaries, and timely distribution of benefits. The information officials ask for during such probes include plan documents; participant census records; the plan's procedures for communicating with participants, spouses and other designated beneficiaries; and information to determine whether the plan has taken sufficient steps to address missing participant situations when they occur.

Marcia S. Wagner, founder and managing partner at The Wagner Law Group, Boston, said she expects missing participant recoveries to continue to make up the bulk of EBSA's overall enforcement recoveries in 2022. "Plan fiduciaries are aware of the issue, and are devoting increased attention to the issue, but nonetheless that is likely to be the area of the greatest attention by the DOL," Ms. Wagner said.

David Levine, Washington-based principal and co-chairman of the plan sponsor practice at Groom Law Group, wasn't surprised that TVPP recoveries held steady at $1.5 billion in the fiscal year, but said the figure could dip moving forward. "I think the number of large plans where they 'have not gotten people their money' is shrinking because there's been a lot of attention paid to (the missing participant issue), which I think is the DOL's purpose," Mr. Levine said. "They're trying to protect the participant."

Cybersecurity is also likely to become an enforcement priority for EBSA in fiscal 2022, ERISA attorney sources said.

EBSA in April released its first cybersecurity guidance making clear that under the Employee Retirement Income Security Act, plan fiduciaries must make reasonable efforts to mitigate cyberthreats.

The three-part guidance included a list of 12 cybersecurity program best practices for plan sponsors and record keepers, such as having a reliable annual third-party audit of security controls and ensuring that any assets or data stored in a cloud or managed by a third-party service provider are subject to appropriate security reviews and independent security assessments.

Now that plan sponsors and service providers have had months to digest the cybersecurity guidance, Ms. Wagner expects enforcement activity in the area. "DOL audits initiated after the DOL issued its initial guidance to plan sponsors, plan participants and plan service providers were intended to provide information regarding plans' cybersecurity policies and procedures, but at some point in 2022 the focus is likely to switch to enforcement," she said.

On the cybersecurity front, a federal court in Chicago ruled in October that Alight Solutions LLC must comply with a Labor Department subpoena to produce documents in an ongoing ERISA compliance investigation. The Chicago regional office of EBSA opened an investigation in July 2019 to determine whether Alight had violated ERISA based on separate plan-level investigations, according to court documents. EBSA discovered that Alight processed unauthorized distributions as a result of cybersecurity breaches relating to its ERISA plan clients' accounts, the agency said in court filings. The department filed a petition for subpoena enforcement against Alight in April 2020 after the company refused to comply with the department's subpoena to provide documents, the Labor Department said in a November news release.

"Complying with U.S. Department of Labor subpoenas is mandatory," said Jeffrey Monhart, EBSA regional director in Chicago, in the news release. EBSA "is charged with protecting the integrity of employee benefit plans and ensuring those that service such accounts comply with the law and protect employees' assets from misuse."

An Alight spokesman did not respond to requests for comment.