Tip for October 2018
The demise of the confusing Investment Fiduciary Advice Rule has allowed the U.S. Department of Labor (“DOL”) to focus on other enforcement priorities.
That’s good news for human resources executives and risk managers because those areas of focus are far more clear.
Among the DOL’s published priorities is the “Plan Investment Conflicts” project. The DOL is investigating how benefit plan committees are managing fiduciary service provider compensation and conflicts of interest in relation to plan asset vehicles.
Here’s what fiduciary committees should know about the PIC project
The Plan Investment Conflicts (“PIC”) project, which began in 2016, continues the efforts of prior enforcement projects by investigating the payment of improper or undisclosed compensation to ERISA plan vendors.
It supports the DOL’s regulatory and reporting initiatives, which are intended to ensure that plan fiduciaries and participants receive comprehensive disclosure about service provider compensation and conflicts of interest.
- PIC project audits seek to identify where recordkeeping, investment advice, and mutual funds are provided by “multiple hat” vendors (that’s where one vendor provides more than one such service). Audit findings in those scenarios consistently reveal conflicted decision making processes by plan fiduciaries, imprudent application of investment guidelines, and the payment of excessive fees.
- The project also continues to examine plan fiduciary due diligence related to investment decisions, service provider selection, and valuation preparation.
- The DOL is also attuned to whether plan fiduciaries are performing their duty to oversee and monitor service provider arrangements, even when no conflict exists.
- PIC exams focus on indirect compensation arrangements, conflicted and undisclosed arrangements, and arrangements that are outside of market standards. The exams look for evidence that plan fiduciaries use a credible method for determining that their plan’s fees are reasonable.
- The DOL’s enforcement unit, which is the Employee Benefit Security Administration (“EBSA”), operates the PIC project. It will conduct criminal investigations of potential fraud, kickback, and embezzlement involving investment managers and advisers to plans and participants.
These five tips will help HR managers and committees be prepared and not get caught off guard.
Check your plan’s fiduciary file to ensure that it contains thorough documentation that explains how your plan’s recordkeeper, investment advisor, fund managers, and custodian were evaluated and hired.
2
Confirm that an in depth evaluation of your plan’s vendors’ fees was conducted within at least the last year that tested the reasonableness of the fees against the “market standard” rather than the “industry standard,” and that a documented methodology for the evaluation exists.
3
Maintain an active file of the steps and documents that define how your plan’s relevant committee oversees and monitors service provider arrangements.
4
If your plan uses a multiple hat vendor, be ready to demonstrate how the inherent conflicts in those arrangements are identified, tested, and isolated.
5
If you’re unsure about your plan’s readiness to pass successfully a PIC audit, then commission an operational risk assessment from Roland|Criss.
