News & Resources
2013 Department of Labor Initiatives
In May, I had the privilege of spending a one-on-one evening with Bradford P. Campbell. Brad was the Assistant Secretary for Employee Benefits Security of the United States Department of Labor (DOL), the official in charge of the Employee Benefits Security Administration (EBSA). Mr. Campbell was nominated by President George W. Bush as Assistant Secretary on May 3, 2007, and was unanimously confirmed by the United States Senate on August 3, 2007. He held the position until January 20, 2009.
Under Campbell’s leadership at EBSA, EBSA first proposed the recently finalized 408(b)(2) service provider disclosure and plan participant disclosure regulations addressing the transparency of 401(k) and other retirement plan fees. Campbell also issued the final QDIA regulation facilitating automatic enrollment of workers in their retirement plans, and a final regulation expanding participant access to professional investment advice. Earlier in his government service, Campbell assisted in developing and negotiating the Pension Protection Act of 2006, including provisions modernizing the prohibited transaction rules.
As you can see, Brad is a pundit on ERISA laws. Brad has focused a great deal of attention to the DOL's Target Date Fund initatives as outlined below. I have also included other Department of Labor concerns that I and other retirment plan consultants believe will be in their crosshairs in the next 12-18 months.
Retirement plans where providers were bought by another company are up for significant scrutiny if they simply defaulted to the new provider. In cases where no RFP was done or no documentation exists and the plan converted to the buying vendor, a possible breach in fiduciary duty may have occurred. Fiduciaries have a duty to choose a provider that is appropriate – not let the vendors choose.
Target Date Funds (TDFs)– in February the DOL issued tips for ERISA plan fiduciaries and may focus their efforts on breaches and lack of oversight.
- Does the plan offer proprietary funds (single fund family) and are they appropriate
- Does it offer “to” retirement strategy or a “through” retirement strategy
- Can you document why the current TDFs (whether “to” or “through”) are appropriate?
- Consider how your TDF characteristics align with participant traits, such as ages, likely retirement dates, salary levels, turnover rates, contribution rates and withdrawal patterns
- Can all return reducing expenses be identified and are they reasonable?
- Has the plan been formally benchmarked? Note: this is critical: if it has not been benchmarked, it’s practically impossible to determine its reasonableness.
- What documentation exists to support the decision you made to choose your current provider?
- When was the last time you conducted an RFP (Request for Proposal) or RFI (Request for Information) to compare your current provider against alternatives.
- This will help confirm or deny the appropriateness of your current provider and the rationale with continuing with them
Investment Review Process
- What written process do you have in place for monitoring your investment lineup?
- Do you have a formal Investment Policy Statement (IPS) which is reviewed and/or adhered to at each quarterly committee meeting?
- Does your IPS foster an environment of subjectivity or objectivity?
- Does your IPS offer clear, concise criteria for monitoring and removing an investment?
As you can see, there are a lot of agenda items pertaining to compliance. However, all of these can be remedied by implementing the appropriate procedures and policies. Frankly, these four items are more about prudence and policies and the ability to substantiate your decisions. If your audit trails and documentation is less than stellar, this can be remedied before a DOL audit.