How to avoid an EBSA investigation

Commentary: The Department of Labor fiscal year fact sheet for 2014 has some real interesting — and scary — facts. 

The DOL claims that the Employee Benefits Security Administration (EBSA) oversees the administration of 684,000 retirement plans, 2.4 million health plans and probably as many other welfare plans like disability and life insurance plans.  That’s a lot of benefit plans. 

Of course, it also touts more than $832 million in monetary recoveries that the agency collected of which about $600 million went back to plan participants. Those are some pretty heady figures.

Also see: Benefit considerations and the contingent workforce

Back in 2013, I made mention of the fact that the DOL was hiring some 1,000 new investigators to help in the audit and enforcement process. You can imagine with millions of plans and an army of investigators, it’s not difficult for the EBSA to find plans that are deficient, improperly administered or subject to some corrective process. 

That means restoring plan assets, maybe additional benefits, and probably fines and penalties — all of which mean added costs to plan sponsors.

Tucked in the middle of the fact sheet is a figure that is worth noting. The DOL reports that it received 1,643 Voluntary Fiduciary Correction Program (VFCP) applications and 25,060 applications under the Delinquent Filer Voluntary Compliance Program (DFVCP). 

The VFCP process is available to anyone who may be liable for fiduciary violations under ERISA, including employee benefit plan sponsors, officials, and parties in interest, may voluntarily apply for relief from enforcement actions, while the DFVCP program allows for plan administrators to pay reduced civil penalties if the required filings are made prior to the date on which the administrator is notified in writing by the DOL of a failure to file a timely annual report. 

Why is that so important?

Well, for fiduciaries and plan administrators, the VFCP process and the DFVCP process present them with the opportunity to avoid becoming one of the “bad” statistics. In many ways, it is better to confess and correct instead of being discovered and penalized. 

Also see: What a new fiduciary standard means to plan sponsors

Chances are pretty good that if your plan is the subject of an EBSA investigation, things are going to turn up that have to be corrected. Self-policing, self-reporting and self-correcting before there is an investigation presents plan sponsors and administrators with a better opportunity to control the costs and mechanisms of the corrective process. 

It’s certainly not a guarantee that everything will come out rosy, but it is better than having mistakes pointed out by the government’s auditing team.

So we know that the EBSA has a lot of investigators that take pride in reporting annually all of the money they recover on behalf of participants. And we know from practical experiences that with all of the rules and regulations governing benefit plans, chance are pretty good that we have made a mistake somewhere. 

Thus, it is a good idea to take a serious look at the plans you sponsor and see if there are errors that can be self-corrected. Your plan professionals should be able to help guide you through that process. 

As a side note, the DOL also reports that 106 individuals were criminally indicted in 2014. You definitely don’t want to be someone who falls into that statistic if you can avoid it.

Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at kmcmurdy@foxrothschild.com or (212) 878-7919.