Is Your Company Prepared for a DOL Investigation?

August 18, 2016

The last thing any human resource professional wants to receive is an envelope alerting them to a Department of Labor (DOL) ERISA Investigation. Unfortunately, today’s HR professionals have reason to be concerned as 75 percent of DOL investigations are closed with correction. Corrections can range from changes to administrative processes, fines, penalties and, in rare cases, imprisonment. Depending on the violation, non- compliance with ERISA can lead to fines and penalties ranging from $110 to $1,100 per day and exposure to potential lawsuits from current and former employees. In addition, a typical investigation provides the employer a mere three weeks to gather the requested documents and schedule interviews with plan fiduciaries.

The Problem: DOL Investigation

The Employee Benefits Security Administration (EBSA) of the DOL conducts comprehensive and in-depth investigations of employee benefit plans. While many people refer to them as audits, the broad authority granted to this agency makes the DOL investigations potentially very risky for a plan’s decision makers.

The Employee Retirement Income Security Act of 1974 (ERISA) imposes personal liability on anyone found to be a fiduciary of an employee benefit plan for any breaches of their fiduciary duties. This is easily understood in the context of a 401(k) plan, but the same duties apply just as forcefully to an employer- sponsored health insurance plan.

DOL investigations can seem like inconvenient annoyances but plan sponsors should be informed of how significant the outcomes could be. ERISA contains criminal provisions that are enforced by the EBSA and do not require referral to another agency. An uninformed fiduciary, or one with a pattern and practice of ongoing disregard for the legal requirements, can be barred permanently from acting as a fiduciary of an employee benefit plan.

Ideally, any contact with the DOL would result in receiving a no-action closing letter. However, the DOL’s focus on health plan investigations, along with the increased awareness of health benefits laws among employees, generally, makes a positive outcome less and less likely.

The Major Players: Fiduciaries

Who or what is a fiduciary? ERISA imposes a standard of conduct on a fiduciary to act as an expert in all matters relating to the administration of the plan and to operate the plan for the exclusive purpose of providing benefits to participants and beneficiaries. ERISA fiduciaries are not absolved of personal liability for mistakes simply because they were not aware of what they should have known or should have done.

ERISA expects a fiduciary to know everything they should or need to know and act accordingly. This takes on higher levels of complexity when considering all the other laws that a plan sponsor must comply with such as COBRA, FMLA, HIPAA and the ACA. Further, ERISA identifies fiduciaries based on their functional role relative to a plan. Some entities, like an employer, are generally considered to be a fiduciary of a plan they sponsor, but ERISA extends that liability to anyone that exercises discretionary control or authority over the management or administration of the plan regardless of their employment position with the plan sponsor.

A fiduciary that is not familiar with what they should do to manage and administer their plan is expected to seek assistance from service providers that can provide the needed expertise and support. This includes obtaining needed assistance to comply with the investigation process, but also contracting advisors and service providers that can help a plan sponsor meet their fiduciary duties on a daily and ongoing basis. Of course, ERISA does not allow a plan sponsor to simply hire an expert and untangle themselves from their ERISA-imposed duties.

Fiduciaries are required to monitor all ongoing arrangements to ensure that the interests and needs of the plan are being met. Some interpret this to mean that a fiduciary is required to engage in a prudent process that finds the best service providers for the plan and then documents that process. Not all plans have the same needs and some plans’ needs change over time. It is critical that the fiduciaries of the plan recognize the needs of the plan and respond accordingly.

Complying with Ever-Changing Legal Obligations and Rapidly Expanding Laws

It has become increasingly clear that plan sponsors need assistance from knowledgeable resources if they are to comply with the ever-changing legal obligations imposed on them by rapidly expanding laws. HR professionals need to work with a team who can create and provide the appropriate resources needed to meet compliance obligations as plan sponsors and fiduciaries.

Additionally, the team should be able to: provide benefits compliance updates that summarize changes in health and welfare requirements; offer compliance education; conduct workshops and seminars; create compliance guides and sample documents, and provide tools to assist with notice and disclosure requirements, including ACA reporting.

Case in point: A company was recently contacted about a pending DOL investigation. After scheduling the onsite appointment with the DOL, the firm reached out to their employee benefits consultant for guidance and was able to identify the documentation needed for the investigator.  Additionally, the company had participated in webinars hosted by their employee benefits consultant regarding how to navigate a DOL investigation successfully, and knew that the investigator wasn’t simply going to review the requested documents. They understood that investigator would want to know about the important decisions that had been made affecting the administration and management of the plan, as well as, the prudent process undertaken to reach the best decisions.

The firm scheduled a meeting with the appropriate employees to review the compliance checklists to ensure that the employees would be prepared for the expected inquiries from the investigator regarding the benefit plan administration. By having a collaborative and comprehensive approach to employee benefits plan compliance, the decision that resulted not only benefited the company but was also in the interest of plan participants. Ultimately, the company was prepared to handle the DOL investigation easily and successfully.

While all HR professionals would be happiest if they never received a notice from the DOL informing them of an investigation, the key to a worry-free investigation is to be prepared and to work with a team who is experienced and can demonstrate proven results.

For further information, please contact Dave Sheppard, Vice President, USI Insurance Services: [email protected] or 973-965-3141.

Written by: Manuel Mendoza
Regional ERISA Counsel, USI Insurance Services LLC

Manuel is currently the Regional ERISA Counsel for USI Insurance Services LLC, a nationally recognized insurance brokerage firm. Manuel supports all offices in the Region and USI’s National Compliance Team with compliance issues affecting health and welfare plans including interpreting and communicating technical information to ensure client satisfaction and support key initiatives.
This includes topics related to al benefits laws such as the PPACA, ERISA, COBRA, HIPAA, FMLA, the IRC, and state insurance laws.

Manuel’s previous position was with the U.S. Dept. of Labor - Employee Benefits Security Administration conducting civil and criminal investigations of employee benefit plans, sponsors, and service providers to ensure fiduciary compliance as well as assisting civil litigation and criminal prosecutions. Prior to EBSA, Manuel was an Associate Attorney with Quintilone and Associates, a law firm in Orange County, CA in the employment law practice area primarily involving wage and hour class action lawsuits and discrimination litigation.

Manuel earned his J.D. from Chapman University, Dale E. Fowler School of Law and is a licensed attorney in California.

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