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05.07.18

DOL Increases Scrutiny of Defined Benefit Plans
Michael Kovacs

Defined benefit (DB) plan sponsors might be facing tighter scrutiny from the U.S. Department of Labor (DOL). Last year, the DOL’s Employee Benefits Security Administration (EBSA) ramped up pension audit operations in its Philadelphia office and later decided to do so elsewhere, the agency announced at an ERISA Advisory Council meeting.

Required statement

The focus of the audits is on DB sponsors’ efforts to deliver benefits to terminated vested participants. According to EBSA’s Reporting and Disclosure Guide for Employee Benefit Plans, plan administrators must provide a “Statement of Accrued and Nonforfeitable Benefits” to participants:

  • On request;
  • On termination of service with the employer; or
  • After the participant has a one-year break in service.

However, only one statement is required in any 12-month period for statements provided on request.

Best practices

Timothy Hauser, EBSA’s Deputy Assistant Secretary for Program Operations, offered some basic best practices for satisfying the agency’s notification requirements:

  • Send participants a certified letter using the participant’s last known address.
  • Keep good records on how to reach plan participants and relay those records to other corporate entities in a merger or acquisition.
  • If mail is returned from the former employee’s last known address, try calling. It is  possible the phone number on record is a mobile phone that would not be pinned to a previous mailing address.
  • When other methods fail, reach out to former co-workers of the separated participant who might have remained in contact.

With so much information available through social media, employers should also consider using this method to find terminated missing participants.

In October 2017, the American Benefits Council submitted a letter to EBSA requesting more detailed guidance because some members have been harshly penalized for failure to do everything possible to find missing participants. From the DOL’s perspective, a plan sponsor’s failure to aggressively track down separated vested participants represents a fiduciary breach — an accusation that plan sponsors would not want to face in an audit.

Deficient audits

In addition, EBSA continues to focus attention on the quality of audits of benefit plans’ financial records by “independent qualified public accountants.” This is in response to an EBSA 2015 report after “auditing” a sampling of plan audits.

The review found “major deficiencies” with 39% of the audits it reviewed. Deficient audits were predominantly conducted by accounting firms with limited experience with this kind of audit. The takeaway from the report is that plan sponsors should carefully research an auditor’s experience auditing benefit plans.

For more information on 401(k) forfeitures,  contact Michael Kovacs at mkovacs@orba.com or 312.670.7444. Visit ORBA.com to learn more about our Employee Benefit Plans Services.
© 2018

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