TPA Audits Section 504 Investigations of TPA Firms. Joshua J. Waldbeser, Attorney, Drinker Biddle & Reath LLP

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1 TPA Audits Section 504 Investigations of TPA Firms Joshua J. Waldbeser, Attorney, Drinker Biddle & Reath LLP

2 Joshua Waldbeser, Attorney, Drinker Biddle & Reath, LLP Joshua has been an attorney in the Employee Benefits and Executive Compensation Practice Group at Drinker Biddle & Reath s Chicago office since 2008, and prior to this, he worked for the U.S. Department of Labor, Employee Benefits Security Administration. Joshua s practice focuses on working with plan sponsors and prototype plan, investment, and other service providers with respect to Title I of ERISA and the IRS qualification requirements for retirement plans. Joshua also works with tax-exempt and governmental employers with respect to 403(b) and 457 plans, including special issues for governmental and church plans.

3 DOL Investigations - Background The DOL has increased its number of service provider investigations. The DOL has targeted TPAs for a number of years.

4 DOL Investigations Background (cont d) At least some of the investigations appear to be part of the DOL s ongoing Fiduciary Service Provider Compensation Project. Purpose is to focus on the receipt of improper or undisclosed compensation by employee benefit plan consultants and investment advisers. Project is intended to ensure that plan fiduciaries and participants receive comprehensive disclosure about service provider compensation and conflicts of interest.

5 DOL Investigations Background (cont d) DOL s investigative authority is very broad!! Clearly, if a provider is a fiduciary, it must comply with ERISA s fiduciary duty and prohibited transaction rules (e.g., 3(16) administrators and functional fiduciaries as well). Non-fiduciary service providers are subject only to the prohibited transaction rules (e.g., 408(b)(2)). The DOL is increasingly applying a more and more expansive definition of fiduciary.

6 DOL Investigations Background (cont d) Use of TPA investigations to identify plan sponsor investigation targets Reporting and disclosure Forms 5500 SPDs/SMMs Pension benefit statements 404a-5 investment/fee disclosures

7 What Should I Do if I Receive an Investigation Letter from the DOL? Request an extension if necessary Clarify the scope of the document request ERISA counsel can assist with this negotiation Inform key personnel of the investigation and designate a contact person

8 How Will the Investigation Proceed? Typically, there are three stages to an investigation: 1.Fact-Finding: Documents turned over and interviews conducted 2.Review: Analysis and initial findings by Investigator 3.Findings/Negotiation: DOL issues initial findings letter and requests voluntary correction you will need to respond and act

9 Document Requests Typically, as part of the investigation, the DOL requests a large quantity of documents. DOL requests: 5. Documents that identify, list, or schedule the company s benefit plan clients, including, without limitation, the following information: the name, employer identification number and address of the plan sponsor; the name of the plan; the plan number; the dates of service to such plan; the name(s) of the plan trustee(s), investment manager(s) and custodian(s). 6. Agreements executed by the company regarding services provided to employee benefit plan clients.

10 Document Requests (cont d) 28. Documents sufficient to identify all compensation received, directly or indirectly, by the company from record keepers or other service providers whose products or services the company has identified for, recommended to, offered to, or utilized in connection with services provided to, any ERISA plan client.

11 Document Requests (cont d) General Observations Deadline for producing documents may be short. Much of the information may not be readily available. Some types of documents may not exist. DOL requests tend to be over-inclusive. TPAs need to understand the implications of the questions and the responses.

12 Recommendations Consider whether to request an accommodation subpoena Other suggested initial steps: Review the document request (with legal counsel if you wish, who can help decipher what issues the DOL is focusing on and help negotiate a narrower scope) Review all documents before turning them over, to help identify potential violations (and redact as appropriate) This includes marketing materials, 408(b)(2) disclosures, etc. Continued

13 Recommendations (cont d) Go over likely questions and responses before the interviews take place Review all sources of compensation If any violations are uncovered, self-correct them before the Investigator finds them Expect delays and remain patient

14 Recommendations (cont d) After you receive the DOL s findings/voluntary compliance letter: Review, with ERISA counsel, the findings for factual and legal accuracy If you uncover what you believe is an error, raise it in a constructive and respectful manner Continued

15 Recommendations (cont d) Defend your rights, but try to resolve issues voluntarily and avoid litigation or a formal settlement agreement, which can result in statutory penalties and other costs Discussion of 502(l) penalties ERISA counsel can assist you with differentiating between good arguments and those the DOL will likely reject Furnish the Investigator with proof of correction

16 Questions?