Publish Date
Jan 16, 2024
Tax Insights
Retirement plans and classic rock songs do not usually end up in the same discussion. Sometimes, though, song lyrics can take on a different meaning. It seems unlikely that the Rolling Stones were thinking about retirement plan compliance when they wrote one of their biggest hits, “Satisfaction.” However, plan sponsors can’t seem to get that catchy tune out of their head, and they seem to be humming that they “try and try,” but they “can’t get no satisfaction.” To make matters worse, the Department of Labor (“DOL”) has been taking enforcement action that makes “satisfaction” all the more important. Thankfully, the DOL has also taken steps to alleviate some of the frustration and confusion through voluntary correction programs, but it’s still not clear that the result is “satisfying.”
For as long as they’ve been humming that tune, plan sponsors have requested additional guidance as to what actions employers must take to meet their fiduciary duties. In recent years, there has been regulatory guidance, legislative changes and proposed changes related to voluntary compliance in the event of a fiduciary breach. The following is a brief timeline of some of the relevant updates:
January 2021. The DOL tried to address employer concerns about a lack of guidance related to missing participants by issuing guidance on the steps that employers can take in an effort to meet their obligations. The guidance includes a list of best practices for pension plans, compliance assistance and enforcement updates.
Overall, the guidance is lacking clarity, but it does provide many examples of best practices for plans to follow and the types of issues for which plan sponsors should be monitoring. These are largely focused on maintaining accurate data, utilizing available resources to locate missing participants, maintaining consistent contact with participants and analyzing “red flag” data (e.g., missing or identifiably incorrect census data).
November 2022. One way to avoid the DOL’s enforcement activities is to take advantage of the DOL’s Voluntary Fiduciary Correction Program (“VFCP”). This program allows for the correction of certain fiduciary breaches with a submission to the DOL. While it has been a useful tool for correction, practitioners and plan sponsors have long requested a self-correction option that does not require full submission to the DOL.
On November 18, 2022, the DOL, via the Employee Benefits Security Administration (“EBSA”), proposed several key changes to the VFCP aimed to lessen the administrative burden on both employers and the DOL/EBSA. Included in these proposals was a “self-correction component” (“SCC”), which is designed to allow employers to correct retirement plan errors without undergoing the full VFCP application process. Instead, employers avoid a full DOL review of their submission by electronically filing a self-correction notice with EBSA after correcting errors themselves.
Employers and plan fiduciaries may avail themselves of the SCC under certain conditions. The two main requirements stipulate that (1) the total lost earnings must be less than $1,000, and (2) the delinquent deposits must have been remitted to the plan within 180 days of the withholding or receipt date. Employers must also complete a self-correction retention record checklist and provide it to the plan administrator for retention. Although the condition that lost earnings cannot exceed $1,000 may limit the number of employers that are eligible for the SCC, EBSA has noted that the majority of plan corrections involve very small dollar amounts. Accordingly, the SCC is designed to provide relief for employers experiencing these small yet common errors.
December 2022. In late 2022, SECURE 2.0 was signed into law as part of the Consolidated Appropriations Act. This legislation included sweeping retirement reforms, including a requirement that the DOL and Department of the Treasury establish an online, searchable database for unclaimed retirement benefits. The lost and found database is required to be established by December 29, 2024, but additional guidance is required in the meantime (e.g., how employers transmit data about the benefits to the database).
Just like a catchy song, there is a reason why plan sponsors can’t get retirement plan compliance issues out of their heads. In this case, it relates to the DOL’s enforcement efforts. Even as additional guidance is being provided and changes are being made, the DOL has continued to actively pursue enforcement. The focus of the DOL’s enforcement activity is evidenced by the continued recoveries reported in 2022. Specifically, in December 2022, the DOL reported recoveries of over $1.4 billion through investigations and enforcement programs for its 2022 fiscal year. These results highlight the DOL’s continued focus on its enforcement programs, including the Terminated Vested Participant Project (“TVPP”). The TVPP is essentially a missing participant project designed to ensure that plan sponsors maintain contact with terminated participants to guarantee that they receive the benefits to which they are entitled. The DOL recovered over $542 million through the TVPP, making it very important that employers focus on this aspect of plan operations in order to decrease the burden of any potential DOL enforcement activity.
One of the last things that anyone wants is to hear a catchy song right before they lay down in bed or settle in to focus on something. Even less enjoyable than that is receiving notice of a regulatory investigation. If an investigation is initiated, it is important to minimize the burden associated with the DOL’s review. While each investigation may be unique and certain techniques will not work in all situations, there are several steps that can be taken to mitigate the burden. First, we encourage establishing a strong rapport with the DOL investigator. They are people doing their jobs and likely have similar goals to employers in making sure that participants receive their benefits. While the process may often be stressful, the DOL has shown willingness to work collaboratively to resolve any issues. In certain investigations, the DOL has even been willing to conduct searches and research participants in order to assist in locating the missing participants. Finally, we recommend documenting efforts that are taken to resolve DOL requests. The investigator is continuously gathering information that is needed to close the investigation. The plan sponsor’s ability to document efforts will lead to a more expeditious resolution.
After hearing “I can’t get no…” over and over in your head, there comes a time when you just have to do something about it! Remedying the process of locating missing participants, in their many forms, can likewise be very difficult. It is important to start by assessing the various data sources, e.g., plan records, sponsor records, recordkeeper data and other vendors. Understanding the flow of data is very important in the development of an effective process. It is important to ask: Where are participants “lost”? How do we respond when we have a missing participant? Once the plan sponsor understands the answers to these questions, they will be able to implement steps to make sure that missing participants are regularly reviewed, and the appropriate steps are taken.
Step One: Look for Warning Signs
A key first step as discussed in the DOL guidance is to look for any warning signs that can indicate there is a problem with missing participants and address missing participants on an ongoing basis. Best practices include, contacting both current and retired participants on a periodic basis, including contact information change requests with all plan communications, and utilizing an online platform where participants can proactively update their contact information themselves. Additionally, searching for missing participants early and often can help alleviate some of the burdens. The DOL’s guidance recommends using free resources like searching social media, searching related plan or employer records, or publishing a list of “missing” participants on the company’s intranet. Regularly taking these actions can identify “missing” participants closer to the time in which they leave the employer or when their information becomes incorrect.
Step Two: Organize Documentation
Documentation is essential in meeting the plan sponsor’s fiduciary duties. If the plan sponsor is able to show that it has taken steps in accordance with its process, the DOL is less likely to closely investigate that particular category of missing participants. Documentation may take many forms, including copies of individual letters that were sent to a specific group of participants, searches that were performed or proof that a participant has declined a benefit. Often processes are in place, but it is difficult to demonstrate that the process was followed and was effective. Therefore, it is very helpful if documentation is readily available.
Step Three: Assess Processes
Finally, it is important to assess the effectiveness of any processes. The DOL places importance on retirement plans having processes and being able to produce documentation of those processes, but if the processes are not working, the DOL will still investigate closely and will require clean-up. Assessment of processes can include comparing the number of missing participants year-over-year to see how effective the process is or reviewing aspects of the process to determine whether any changes can be made to increase effectiveness.
In order to get “satisfaction” through retirement plan compliance, it is important to take steps to efficiently and effectively minimize regulatory and fiduciary compliance burdens. The DOL has provided some of that guidance, but it has also stepped up its targeted enforcement activities. Proactive compliance efforts, including interim plan administration reviews and the implementation of strong, documented processes, can reduce the risk of investigation or minimize the cost and strain that result from an investigation. Doing so may even get that satisfaction!